Detailed Answer
(d) An accrued liability is an expense which has been
incurred, but has not been paid. Of the $500 advertising bill,
$375 had been incurred as an expense as of 12/31/Y2 and should
be reported as an accrued liability at that time. For the store
lease, the fixed portion ($1,200 per month) is payable on the
16th of each month for the preceding month. Therefore, on
12/16/Y2, rent was paid for the period 11/16/Y2 to 12/15/Y2.
An additional one-half month’s rent expense (1/2 × $1200 =
$600) has been incurred but not paid as of 12/31/Y2. The variable
portion of the rent [5% × ($550,000 – $300,000), or
$12,500] was incurred during year 2, but will not be paid until
1/31/Y3. It, too, is an accrued liability at 12/31/Y2. Total
12/31/Y2 accrued liabilities are $13,475.
Advertising $ 375
Fixed rent (1/2 × $1,200) 600
Variable rent [5% × ($550,000 −$300,000)] 12,500
Total $13,475