Question

Fes Company is making adjusting journal entries for the year ended December 31, 2018. In developing information for the adjusting journal entries, you learned the following: a. A two-year Insurance premium of $6,300 was paid on January 1, 2018, for coverage beginning on that date. As of December 31, ed balances were $6,300 for Prepaid Insurance and $0 for Insurance Expense. b. At December 31, 2018, you obtained the following data relating to supplies. Unadjusted balance in Supplies on December 31, 2018 Unadjusted balance in Supplies Expense on December 31, 2018 Supplies on hand, counted on December 31, 2018 $19,5ee 63, eee 6,480 Required: 1. Of the $6,300 paid for insurance, what amount should be reported on the 2018 income statement as Insurance Expense? What amount should be reported on the December 31, 2018, balance sheet as Prepaid Insurance? 2. What amount should be reported on the 2018 income statement as Supplies Expense? What amount should be reported on the December 31, 2018, balance sheet as Supplies? 3. Indicate the accounting equation effects of the adjustment required for (a) Insurance and (b) supplies.

Answer 1

Solution 1:

Insurance expense = $6300* 1/ 2 = $3,150

Prepaid insurance = $6300 -$3150 = $3,150

Solution 2:

Supplies expesne = 63000 + (10500 - 6400) = $67,100

Supplies = $6,400

Solution 3:

6 Transaction Liabilities 7 8 Assets Prepaid insurance Supplies (10500-6400) -3150 -4100 Stockholders Equity Insurance expense Supplies expesne -3150 -4100 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 et232 Sheet200 (2) Sheet9 Sheet200 (3) Sheet221 Sheet595 (3) Sheet13 ) Sheet14 IILO