Chapter 3, Problem 7E

Identifying Accrual Basis Expenses

Under accrual basis accounting, expenses are recognized when incurred. The following transactions occurred in January:

1. a. American Express paid its salespersons $3,500 in commissions related to December sales of financial advisory services. Answer from American Express’s standpoint.
2. b. On January 31, American Express determined that it will pay its salespersons $4,200 in commissions related to January sales. The payment will be made in early February. Answer from American Express’s standpoint.
3. c. The city of Omaha hired Waste Management, Inc., to provide trash collection services beginning January 1. The city paid $12 million for the entire year. Answer from the city’s standpoint.
4. d. The University of Florida paid $10,000 in advance for refundable airline tickets to fly the baseball team to a tournament in California. The first game will be played in March. Answer from the university’s standpoint.
5. e. A Houston Community College employee worked eight hours, at $15 per hour, on January 31; payday is not until February 3. Answer from the college’s point of view.
6. f. Wang Company paid $3,600 for a fire insurance policy on January 1. The policy covers 12 months beginning on January 1. Answer from Wang’s point of view.
7. g. Ziegler Company, a farm equipment company, received a phone bill for $230 of January calls. The bill has not been paid to date.

Required:

For each of the transactions, if an expense is to be recognized in January, indicate the amount. If an expense is not to be recognized in January, indicate why.