Use the following information to answer questions 1-5. The Aggie Graphics Compan

Question

Use the following information to answer questions 1-5.

The Aggie Graphics Company was organized on January 1, 2017.

The trial balance before adjustment at December 31, 2017 contained the following account balances:

Analysis reveals the following additional data: (Assume the books are only closed at year end)

(A)    The $2,700 balance in Supplies Expense represents supplies purchased in January. At December 31,  there was $1,200 of supplies on hand.

(B)    The note payable was issued on September 1. It is a 3% 6-month note.

(C)    The balance in Prepaid Insurance is the premium paid on a one-year policy, dated March 1, 2017.

(D)    Consulting Fees are credited to revenue when received. At December 31, consulting fees of $1,000 contracted for January, 2017 have yet to be performed.

(E)    The equipment was purchased on January 1, 2017. It has a 10-year useful life and no salvage value.

The entry to record (A) above would include a debit to: (Assume the company is only making one adjusting entry to record this information)

Supplies for $1,500

Supplies for $1,200

Supply Expense for $1,200

Prepaid Supply Expense for $2,700

1 points   

QUESTION 2

What is the balance in the interest payable account after adjustment?

$ 45

$180

$90

$270

1 points   

QUESTION 3

The correct entry to record (E) above is:

Depreciation Expense               4,500

                Accumulated Depreciation                4,500

Depreciation Expense                9,000

                 Accumulated Depreciation               9,000

Depreciation Expense                9,000

                 Equipment                                        9,000

Depreciation Expense                9,000

                Accumulated Depreciation                4,500

                Equipment                                         4,500

Cash $9,500 Accounts Receivable 4,000 Prepaid Insurance 1,800 Equipment 45,000 Accumulated Depreciation 4,500 Accounts Payable 3,500 Notes Payable 18,000 Common Stock 5,000 Retained Earnings 12,000 Dividend 2,000 Graphic Fees Earned 52,100 Consulting Fees Earned 5,000 Salaries Expense 30,000 Supplies Expense 2,700 Advertising Expense 1,900 Rent Expense 1,500 Utilities Expense 1,700 $100,100 $100,100

Explanation / Answer

Solution:

Question 1 --

The entry to record (A) above would include a debit to:

The correct option is B. Supplies for $1,200 (Balance Sheet Item)

Explanation – The Company recorded All the Supplies purchase in January as Supplies Expense. At the end of Dec 31, Supplies in hand was $1,200 it means $1,200 is Supplies which will be shown in Balance Sheet as Supplies under Current Assets.

So, we need to reduced the Supplies Expense by $1,200 and Debit the Supplies (Balance Sheet Item).

Question 2 ---

What is the balance in the interest payable account after adjustment?

The correct option is B. $180

Explanation -- Notes was issued on Sept 1 and has 3% interest rate for 6 month.

So, from Sept 1 to Dec 31, total 4 months interest to be recorded.

4 months Interest Expense = $18,000*3%*4/12 = $180

Question 3 –

The correct entry to record (E) above is:

The correct option is

A.

Depreciation Expense               4,500

                Accumulated Depreciation                4,500

One year depreciation = (Cost of Equipment $45,000 – Salvage Value 0) / Life 10 = $4,500

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

A.

Depreciation Expense               4,500

                Accumulated Depreciation                4,500

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