On June 30,2011,Apricot Co.paid $5,000 cash for management services to be performed over a two-year period.Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment.
On June 30,2011 Apricot should record:

Question

Quizplus · Accepted Answer

Since Apricot Co. follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment, it should record a debit to a prepaid expense account for $5,000 when it pays for the management services. This will increase the asset value of the prepaid expense account, which will be gradually expensed over the two-year period that the services are being performed. So, option D is the correct answer.