The Orange Lily Law Frm prepays for advertising in the local newspaper. On Janua

Question

The Orange Lily Law Frm prepays for advertising in the local newspaper. On January 1, the law firm paid $2,400 for eight months of advertsing How much advertising expense should Orange Lily Law Firm record for the two months ending February 28 under the a. cash basis? b. accrual basis? a Under the cash bass, Orange Lity Law Firm will lecord of advertising expense for the two months ending February 28 b. Under the accrual basis, Orange Ldy Law Firm will records of advertising expense for the two months ending February 28 Enter any number in the edit fields and then continue to the next question

Explanation / Answer

Solution: a. Under the cash basis, Orange Lily Law Firm will record $ 2,400 of advertising expense for the two months ending February 28 b. Under the accrual basis, Orange Lily Law Firm will record $ 600 of advertising expense for the two month sending February 28 Working Notes: Under cash basis , expense are recorded as the cash is paid for the expenses, so ending on February 28 , total cash paid is $2,400 , total expenses will be recorded will be is $2,400 Under accrual basis , expenses are recorded as the period expired, though amount paid was for eight month , but till February 28 only two month have been expired so we can record advertising expenses for two months only. ($2,400/8) x 2 =$600 Please feel free to ask if anything about above solution in comment section of the question.

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