X Company prepares monthly financial statements. The company rents a fax machine
ID: 2483097 • Letter: X
Question
X Company prepares monthly financial statements. The company rents a fax machine. The rental agreement calls for $400 lump sum payment at the beginning of each month, plus an additional $0.08 per fax sent during the month, payable on the 10th of the following month. In November, 1,100 faxes were sent; in December, 1,000 faxes were sent. On X Company's November Income Statement, telephone expense was X Company prepares annual financial statements. On October 1, 2015, X Company paid $21,000 in advance a two-year insurance policy. After the adjusting entry on December 31, 2015, what will the financial statements how?Explanation / Answer
1.
Lump sum payment = $400
Fax sending charges = 1,100 faxes * $0.08 per fax = $88
November telephone expense = Lump sum payment + Fax sending charges = $400 + $88 = $488
Hence, Answer is F.$488
2.
Insurance for 2 year = $21,000
Insurance cost per month = $21,000 / 24 months = $875 per month
Insurance expense for year ending December 31, 2015 = Insurance cost for 3 months i.e. October 2015 to December 2015 = $875 * 3 = $2,625
Prepaid insurance as on December 31, 2015 = Total insurance paid – Insurance expense = $21,000 - $2,625 = $18,375
Hence, Answer is F. Prepaid insurance $18,375; Insurance expense $2,625
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