Question

Knoll Company started Year 2 with a $500 balance in its Cash account, a $500 balance in its Supplies account and a $1,000 balance in its common stock account. During Year 2 the company experienced the following events.

Paid $400 cash to purchase supplies

Physical count revealed $100 of supplies on hand at the end of Year 2

Based on this information the amount of supplies expense reported on the Year 2 income statement is

A. $900.

B. $400.

C. $800.

D. $100.

Answer 1

The amount of supplies expense reported on the Year 2 income statement is $300.

Step-by-step explanation:

The amount of supplies expense reported on the Year 2 income statement can be calculated by subtracting the supplies on hand at the end of Year 2 from the total supplies purchased during Year 2. In this case, Knoll Company paid $400 cash to purchase supplies during Year 2 and had $100 of supplies on hand at the end of Year 2. Therefore, the supplies expense reported on the Year 2 income statement is $400 - $100 = $300.

The supplies expense on the Year 2 income statement is derived by taking the total supplies purchased during Year 2 and deducting the supplies remaining at the end of Year 2. This calculation reflects the portion of supplies used up or consumed throughout the year, indicating the expense incurred in maintaining operations. By subtracting the ending inventory of supplies from the total purchased, it reveals the cost of supplies utilized in Year 2, representing the supplies expense reported on the income statement.