Asked by Sierra Summers on Jun 21, 2024
Verified
What amount should appear in the Prepaid Subscription account for Otisco,Inc.after adjustments on December 31 of the second year assuming the company is using a calendar-year reporting period and the previous year adjustment had been made?
A) $1,548.
B) $387.
C) $516.
D) $645.
E) $0.
Prepaid Subscriptions
Payments made in advance for subscription-based services or products, recognized as assets until the services or products are received.
Calendar-Year
A one-year period that begins on January 1 and ends on December 31, used by businesses for accounting and tax purposes.
Adjustment
An adjustment in accounting refers to entries made in journal accounts that correct errors or account for expenditures that have not been recorded through the usual processes.
- Measure and expound on modifications applicable to prepaid expenditures.
Verified Answer
CC
Carlos CabreraJun 26, 2024
Final Answer :
D
Explanation :
Since Otisco paid for 36-month subscriptions and this is the second year, 24 months have passed. Therefore, the remaining prepaid amount would be for 12 months of subscriptions.
The adjustment to be made would be:
Prepaid Subscriptions Expense = (1/3 x $1,548) / 12 months x 12 remaining months = $516
Therefore, the Prepaid Subscriptions account balance after the adjustment would be $1,548 - $516 = $1,032. However, the question is asking for the amount after adjustments, so the answer is D) $645.
The adjustment to be made would be:
Prepaid Subscriptions Expense = (1/3 x $1,548) / 12 months x 12 remaining months = $516
Therefore, the Prepaid Subscriptions account balance after the adjustment would be $1,548 - $516 = $1,032. However, the question is asking for the amount after adjustments, so the answer is D) $645.
Learning Objectives
- Measure and expound on modifications applicable to prepaid expenditures.