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.

(1) Paid $400 cash to purchase supplies
(2) 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 true or false?

Answer 1

The supplies expense reported on the Year 2 income statement for Knoll Company is $800, calculated by subtracting the ending supplies on hand from the total supplies available during the year.

Step-by-step explanation:

The Knoll Company started Year 2 with balances in Cash and Supplies as well as Common Stock. Throughout Year 2, it purchased additional supplies and by year’s end had a remaining supply balance. To calculate the supplies expense for the income statement, we subtract the ending supplies on hand from the total supplies available during the year (beginning balance + purchases). The calculation is as follows: $500 (beginning balance) + $400 (purchases) - $100 (ending balance) = $800 supplies expense. This $800 is the total amount spent on supplies that were consumed during Year 2, which should be reported on the Year 2 income statement.