QS 3-7 Adjusting prepaid (deferred) expenses LO P1 For each separate case, record the necessary adjusting entry. On July 1, Lopez Company paid $2,900 for six months of insurance coverage. No adjustments have been made to the Prepaid Insurance account, and it is now December 31. Zim Company has a Supplies account balance of $8,400 at the beginning of the year. During the year, it purchased $3,700 of supplies. As of December 31, a physical count of supplies shows $1,650 of supplies available. Prepare the year-end adjusting entries to reflect expiration of the insurance and correctly report the balance of the Supplies account and the Supplies Expense account as of December 31.

Question

Matias Sawyer

Business

5 January, 06:21

QS 3-7 Adjusting prepaid (deferred) expenses LO P1 For each separate case, record the necessary adjusting entry. On July 1, Lopez Company paid $2,900 for six months of insurance coverage. No adjustments have been made to the Prepaid Insurance account, and it is now December 31. Zim Company has a Supplies account balance of $8,400 at the beginning of the year. During the year, it purchased $3,700 of supplies. As of December 31, a physical count of supplies shows $1,650 of supplies available. Prepare the year-end adjusting entries to reflect expiration of the insurance and correctly report the balance of the Supplies account and the Supplies Expense account as of December 31.

+4

Answers (1)

Know the Answer?

Meyer · Answer 1

Adjusting Journal Entries:

December 31:

Debit Insurance Expense $2,900

Credit Prepaid Insurance Account $2,900

To record the insurance expense for the year.

Debit Supplies Expense $10,450

Credit Supplies Account $10,450

To record the supplies expense for the year.

Explanation:

a) The whole portion of Prepaid Insurance has expired since payment was made for 6 months on July 1. This covers the period from July 1 to December 31.

b) The total supplies inventory for the year will be $12,100 ($8,400 + 3,700). Since the physical count shows $1,650 of supplies available, it means that the difference $10,450 ($12,100 - 1,650) had been used. This portion is therefore expensed in accordance with the accrual concept.