Question

A. On July 1, 2017, Lopez Company paid Sl,200 for six months of insurance coverage. No adjustments have been made to the Prepaid Insurance account, and it is now December 31, 2017. Prepare the journal entry to reflect expiration of the insurance as of December 31, 2017.

b. Zim Company has a Supplies account balance of $5,000 on January 1, 2017. During 2017, it purchased $2,000 of supplies. As of December 31, 2017, a supplies inventory shows $800 of supplies available. Prepare the adjusting journal entry to correctly report the balance of the Supplies account and the Supplies Expense account as of December 31, 2017.

Answer 1

a. ADJUSTING PREPAID EXPENSES

Account Title & Explanation Debit Credit

Insurance Expenses $1,200

Prepaid Insurance $1,200

(To record the 6 month insurance coverage)

b. Recording supplies used during the financial year

Account Title & Explanation Debit Credit

Supplies Expenses $6,200

Supplies ($5000 + $2000 - $800) $6,200

(To record supplies consumed during the year)