On July 1 of the current calendar year, Plum Co. paid $7,600 cash for management services...

On July 1 of the current calendar year, Plum Co. paid $7,600 cash for management services to be performed over a two-year period beginning July 1. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31 of the current year for Plum would include:

Multiple Choice

A debit to an expense and a credit to a prepaid expense for $5,700.
A debit to a prepaid expense and a credit to Cash for $5,700.
A debit to an expense and a credit to a prepaid expense for $1,900.
A debit to a prepaid expense and a credit to an expense for $1,900.
A credit to a liability and a debit to a prepaid expense for $1,900.

Solutions

Expert Solution

Answer:A debit to an expense and a credit to a prepaid expense for $1,900.

explanation

date	accounts	debit	credit

Jul-01	prepaid expense	7600
	cash		7600

Dec-31	expense	1900
	prepaid expense		1900
	(7600*6/24)

ekkarill92 answered 2 years ago

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