Question

Delta Company started Year 2 with a $1,700 balance in its Cash account, a $700 balance in its Supplies account and a $2,400 balance in its Common Stock account. During Year 2 the company experienced the following events.

Paid $1,600 cash to purchase supplies.

Physical count revealed $400 of supplies on hand at the end of Year 2.

Based on this information, which of the following show how the year end adjusting entry required to recognize supplies expense would affect Delta's account balances?

A. Assets = Liabilities + Stockholders' Equity
Cash + Supplies =
(1,600) 1,600

B. Assets = Liabilities + Stockholders' Equity
Supplies = Retained Earnings
(1,900) (1,900)

C. Assets = Liabilities + Stockholders' Equity
Supplies = Accounts Payable
1,900 1,900

D. Assets = Liabilities + Stockholders' Equity
Supplies = Retained Earnings
(1,600) (1,600)

Answer 1

The year-end adjusting entry to recognize supplies expense for Delta Company involves decreasing Supplies and Retained Earnings by $1,900, which is based on the supplies used during the year.

Step-by-step explanation:

The student asked about the year-end adjusting entry required to recognize supplies expense for Delta Company. The company started with a $700 balance in its Supplies account and paid $1,600 cash for additional supplies. By the end of Year 2, a physical count revealed $400 of supplies on hand. The correct year-end adjusting entry will decrease the Supplies account by the amount of supplies used during the year ($1,900, calculated as the starting balance plus purchases minus the ending balance: $700 + $1,600 - $400) and will also decrease the Retained Earnings to reflect the supplies expense.

The correct adjustment affects the accounting equation as follows:

Assets = Liabilities + Stockholders' Equity

Supplies = Retained Earnings (1,900) (1,900)