Aubrea Company is making adjustment entries for the year ended December 31, 2011
ID: 2664324 • Letter: A
Question
Aubrea Company is making adjustment entries for the year ended December 31, 2011. In developing information for the adjusting entries, the accountant learned the following:
A. A two year insurance premium of $3,600 was paid on October 1 2011 for coverage beginning on that date.
B. At December 31, 2011 the following data relating to Shipping Supplies, were obtained from the records and supporting documents.
Shipping supplies on hand January 1 2011 $11,000
Purchases of shipping supplies during 2011 $60,000
Shipping supplies on hand, counted on December 31, 2011 $20,000
Required:
1. Using the process illustrated in the chapter, record the adjusting entry for insurance at December 31, 2011 assuming that the premium was paid on October 1, 2011 and the bookkeeper debited the full amount to Prepaid Insurance.
2. Using the process illustrated in the chapter, record the adjusting entry for supplies at December 31, 2011 assuming that the purchases of shipping supplies were debited in full to Shipping Supplies.
3. What amount should be reported on the 2011 income statement for Insurance Expense? For Shipping Supplies Expenses?
4. What amount should be reported on the December 31, 2011 balance sheet for Prepaid Insurance? For Shipping Supplies?
Required:
For each of the transactions indicate the amount and direction of effects of the adjusting entry on the elements of the balance sheet and income statement. Using the following format, indictae + increase, - for deecrease and NE for no effect.
BALANCE SHEET INCOME STATEMENT
Transaction Assets Liabilities Stokcholder's Equity Revenues Expenses Net Income
A.
B.
Explanation / Answer
1 Two years insurance premium $3,600 For One year =3,600/2=1,800 The premium was paid on 1st Oct 2011 i.e. 3 months prepaid 1,800 *3/12 450 Adjusting entry: 31-Dec Insurance Expenses 450 Pre-paid Insurance 450 (To record pre-paid expenses) 2.. 31-Dec Supplies Expenses 51,000 Supplies 51,000 (To record supplies expenses) 3 31-Dec Amount reported on the Dec 31 Income Statement For Insurance Expenses 450 For Shipping Supplies 51,000 4 31-Dec Amount should be reported on the Dec,31 2011 Balance Sheet On Assets side Pre-paid Insurance 3,150 On Assets side Shipping Supplies 20,000 Effects of adjusting entry on the elements of Balance Sheet and Net Income Balance Sheet Insurance expensest leads to decrease in the net income ,which ultimately leads to decrease in stockholders' Equity. 1 Assets Liabilities Stockholders' Equity -450 -450 Income Statement Revenues Expenditure Net Income 450 -450 2 Supplies Expenses leads to decrease in the net income,which utlimately leads to decrease in stockholders'Equity . Supplies amounts decreases it leads to decrease in Assets and Stockholders'Equity. Assets Liabilities Stockholders' Equity -51,000 -51,000 Income Statement Revenues Expenditure Net Income 51,000 -51,000
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