Question

For each of the following separate situations, determine the amount of expense each company should recognize in December (using accrual basis accounting).

a. Chipotle has monthly wages expense of $3,200 that has been incurred but not paid as of December 31.
b. United Airlines purchases a 24-month insurance policy for $48,000 on December 1 for immediate coverage.
c. On December 15, Pfizer prepays $20,000 for hotel rooms for its annual sales meeting in January.

Answer 1

Answer:

A. 3200

B. 2000

C. 0

Explanation:

A. At the end of the month the wages must be paid so it is the whole amount.

B. Because only one month of the policy has been used, the answer is 48000/24 for the one month that has been used.

C. Because the rooms have not been used - the answer is 0.