Continental AG is a large German supplier of auto parts. Assume that Continental had €62.4 million of prepaid expenses on January 1, 2012. (€ stands for euro the European currency.) This item mainly consists of prepayments of rent, leasing fees, interest, and insurance premiums.
Assume all these prepayments were for services that Continental used during 2012 and that Continental spent €164 million in cash during 2012 for rent, leasing fees, and interest, of which €38 million was a prepayment of expenses for 2013.
1. Prepare a journal entry recognizing the use of the €62.4 million of prepaid expenses during 2012.
2. Prepare a compound journal entry for the cash payment of €164 million for rent, leasing fees, interest, and insurance premiums during 2012, with the proper amounts going to expense and prepaid expenses.