repaid Insurance—Annual Adjustments
On April 1, 2017, Stratton, Inc., purchases a 24-month property insurance policy for $79,200. The policy is effective immediately. Assume that Stratton prepares adjustments only once a year, on December 31.
Required:
1. Compute the monthly cost of the insurance
policy.
$per month
2. Identify and analyze the transaction to record the purchase of the policy on April 1, 2017.
| Activity | |
| Accounts | |
| Statement(s) |
How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry"
and leave the amount box blank. If the effect on a financial
statement item is negative, i.e, a decrease, be sure to enter the
answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' |  |
Net | ||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |||||
3. Identify and analyze the adjustment on December 31, 2017.
| Activity | |
| Accounts | |
| Statement(s) |
How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry"
and leave the amount box blank. If the effect on a financial
statement item is negative, i.e, a decrease, be sure to enter the
answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | |
Net | ||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |||||
4. Assume that the accountant forgets to record
an adjustment on December 31, 2017. Will net income for the year
ended December 31, 2017, be understated or overstated?
Homework Answers
1. Monthly cost of insurance policy = 79,200 / 24 months = $3,300
2.
| Activity | Operating |
| Accounts | Prepaid insurance increases, cash decreases |
| Statements | Balance sheet only |
3.
| Activity | Operating |
| Accounts | Prepaid insurance decreases, insurance expense increases |
| Statements | Balance sheet and income statement |
4.
Net income will be overstated by $29,700, because expense is understated by $29,700.
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repaid Insurance—Annual Adjustments
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in the year.
Required:
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$144,800 in cash. Assume that the computer is expected to have a
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Required:
1. Identify and analyze the transaction to
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Activity
Accounts
Statement(s)
How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry"
and...
Allowance Method of Accounting for Bad Debts—Comparison of the
Two Approaches
Guzman Inc. had the following data available for 2017 (before
making any adjustments):
Accounts receivable, 12/31/17
$324,200
Allowance for doubtful accounts
2,600
Net credit sales, 2017
842,000
Required:
1. Identify and analyze the adjustment to
recognize bad debts under the following assumptions:
(a) bad debts expense is expected to be 2% of net credit sales for
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Accounts
Statement(s)
How does this entry affect the accounting equation?...
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