Question

Incurred $38 million in income tax expense related to current year profits and paid the entire amount in cash during the current period. ¡) \ Incurred and paid $1,795 million in selling, general, and administrative expenses during the period. Paid employees $281 million cash in the current period for salaries and wages. Of this $281 million, $13 million relates to prior period employee service and $268 million relates to current period employee service Paid $26 million cash for future advertising expenses in the current period. At the end of the current period, $2 million worth of these advertisements had not yet run (i.e, $2 million was still prepaid at the end of the period).

Answer 1

Answers

• Answer (i)

Since the expense belongs to current period, the same will be recorded as an expense.

Transaction	Accounts title	Debit ($ in million)	Credit ($ in million)
i	Income tax Expense	38
	Cash		38
	(income taxes for current year paid in cash)

• Answer (j)

Transaction	Accounts title	Debit ($ in million)	Credit ($ in million)
j	Selling General and administrative expense	1795
	Cash		1795
	(expenses for current period paid)

• Answer (k)

Current period expense will be recorded as an expense.
Prior period would have recorded as Payable at the time of accrual.
The same will be recorded by debiting payable account.

Transaction	Accounts title	Debit ($ in million)	Credit ($ in million)
k	Salaries & Wages expense	268
	Salaries & Wages payable	13
	Cash		281
	(expenses paid in cash)

• Answer (l)

--Entry at the time of making cash payment:

Transaction	Accounts title	Debit ($ in million)	Credit ($ in million)
k	Prepaid expense [advertising]	26
	Cash		26
	(cash amount)

--Entry at the time of adjusting advertising expense

Transaction	Accounts title	Debit ($ in million)	Credit ($ in million)
k	Advertising expenses	24
	Prepaid expense [advertising]		24
	(expenses for period expired)

This will leave $ 2 million in “Prepaid expenses [advertising]” account, as it got debited by $26 million, but credited by only $ 24.