Kemp Co. must determine the December 31, 2006 year-end accruals for advertising and rent expenses. A $500 advertising bill was received January 7, 2007, comprising costs of $375 for advertisements in December 2006 issues, and $125 for advertisements in January 2007 issues of the newspaper.
A store lease, effective December 16, 2005, calls for fixed rent of $1,200 per month, payable one month from the effective date and monthly thereafter. In addition, rent equal to 5% of net sales over $300,000 per calendar year is payable on January 31 of the following year. Net sales for 2006 were $550,000.
In its December 31, 2006 balance sheet, Kemp should report accrued liabilities of
- $12,875
- $13,000
- $13,100
- $13,475