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, what is the amount of supplies expense reported on the Year 2 income statement?
1) $400
2) $500
3) $600
4) $700

Answer 1

The supplies expense for Knoll Company in Year 2 is $700, calculated by taking the total supplies acquired during the year and deducting the supplies on hand at year-end.

Step-by-step explanation:

The amount of supplies expense reported on the Year 2 income statement is calculated by starting with the total amount of supplies purchased during the year and subtracting the ending inventory of supplies. Knoll Company started Year 2 with supplies worth $500 and purchased additional supplies worth $400. At the end of Year 2, a physical count revealed that there were $100 worth of supplies on hand. The supplies expense is therefore computed as follows:

Beginning Supplies + Purchased Supplies - Ending Supplies = Supplies Expense

($500 + $400) - $100 = $800 - $100 = $700

Thus, the correct answer is (4) $700, which represents the total supplies expense for Year 2.