MC23 On December 31, 2022, the Brown Company had a P990,000 balance in its Advertising Expense account before any year-end adjustments relating to the following: * On January 4, 2023, Brown received a P50,000 bill for radio advertising spots broadcast during December 2022. It paid the bill on January 15, 2023. * The P990,000 includes a P60,000 newspaper advertising for a January 2023 sales promotional campaign. Brown Company's advertising expense for the year ended December 31, 2022, should be: a. P1,040,000 b. P1,000,000 c. P980,000 d. P930,000
Answer (1)
To determine Brown Company's advertising expense for the year ended December 31, 2022, we need to make some adjustments to the existing balance in their Advertising Expense account.
Initial Balance : The initial balance in the Advertising Expense account is P 990 , 000 .
Unrecorded Expense Adjustment : On January 4, 2023, Brown received a bill for P 50 , 000 for radio ads that were broadcast in December 2022. Since this expense relates to December, it should be included in the 2022 advertising expense. We add P 50 , 000 to the current balance.
Prepaid Expense Adjustment : The P 990 , 000 balance includes P 60 , 000 for newspaper advertising for a campaign that will occur in January 2023. Since this expense relates to January 2023, it should not be included in the 2022 advertising expense. We need to subtract P 60 , 000 from the current balance.
To calculate the correct advertising expense for 2022, combine these adjustments:
Advertising Expense 2022 = Initial Balance + Unrecorded Expense - Prepaid Expense
= P 990 , 000 + P 50 , 000 − P 60 , 000
= P 980 , 000
Therefore, the correct advertising expense for the year ended December 31, 2022, is P 980 , 000 .
The answer to the multiple-choice question is c. P 980 , 000 .
