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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 [tex]$\$ 4,200$[/tex] that has been incurred but not paid as of December 31.

b. United Airlines purchases a 24-month insurance policy for [tex]$\[tex]$ 63,000$[/tex][/tex] on December 1 for immediate coverage.

c. On December 15, Pfizer prepays [tex]$\$ 30,000$[/tex] for hotel rooms for its January sales meeting.

[tex]\[
\begin{tabular}{|l|l|}
\hline \multicolumn{1}{|c|}{Situations} & \begin{tabular}{c}
Expense \\
recognized in \\
December
\end{tabular} \\
\hline a. Wages expense incurred but not paid & \\
\hline b. Purchases a 24-month insurance policy & \\
\hline c. Prepays for hotel rooms for its annual sales meeting & \\
\hline
\end{tabular}
\][/tex]

Sagot :

GinnyAnsweridn
Let's analyze each situation separately to determine the amount of expense to be recognized in December.

### Situation a: Wages Expense Incurred but Not Paid

- Chipotle has a monthly wages expense of \[tex]$4,200 that has been incurred but not paid as of December 31. - Accrual basis accounting requires expenses to be recognized when they are incurred, not when they are paid. Therefore, even though the wages have not been paid by December 31, they were incurred in December and should be recognized as an expense. \[ \text{Wages Expense for December} = \$[/tex]4,200
\]

### Situation b: Purchases a 24-month Insurance Policy

- United Airlines purchases a 24-month insurance policy for \[tex]$63,000 on December 1 for immediate coverage. - Under the accrual basis of accounting, the expense should be matched with the period it is associated with. - The total insurance cost should be allocated over the 24 months of coverage. To find the insurance expense for December: \[ \text{Monthly Insurance Expense} = \frac{\$[/tex]63,000}{24 \text{ months}} = \[tex]$2,625 \] Therefore, the insurance expense to be recognized in December is: \[ \text{Insurance Expense for December} = \$[/tex]2,625
\]

### Situation c: Prepays for Hotel Rooms

- On December 15, Pfizer prepays \[tex]$30,000 for hotel rooms for its sales meeting in January. - Prepayments are considered an asset until the related service is provided. - Since the hotel rooms are for January, no expense should be recognized in December. Thus, the hotel expense recognized in December will be: \[ \text{Hotel Expense for December} = \$[/tex]0
\]

### Summary Table

[tex]\[ \begin{tabular}{|l|l|} \hline \multicolumn{1}{|c|}{Situations} & \begin{tabular}{c} Expense \\ recognized in \\ December \end{tabular} \\ \hline a. Wages expense incurred but not paid & \$4,200 \\ \hline b. Purchases a 24-month insurance policy & \$2,625 \\ \hline c. Prepays for hotel rooms for its annual sales meeting & \$0 \\ \hline \end{tabular} \][/tex]

In conclusion, the expenses recognized in December are \[tex]$4,200 for wages, \$[/tex]2,625 for the insurance policy, and \$0 for the hotel rooms.
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