Question

the trial balance of ortiz company as of january 31, 20x1, after the company completed the first month of operations, is shown in the partial worksheet below. required: complete the worksheet by making the following adjustments: supplies on hand at the end of the month, $7,200; expired insurance, $7,000; depreciation expense on equipment for the period, $3,100. analyze: how does the insurance adjustment affect prepaid insurance?

Answer 1

To adjust the working sheet, decrease Supplies Expense by $7,200; reduce Prepaid Insurance and recognize an Insurance Expense of $7,000; and record a Depreciation Expense of $3,100 with a corresponding credit to Accumulated Depreciation. The insurance adjustment reduces the Prepaid Insurance account, representing the consumption of the insurance benefit.

Step-by-step explanation:

The Ortiz Company needs to make adjustments in their accounting records at the end of January for the supplies on hand, expired insurance, and depreciation of equipment. For supplies, an adjustment entry would decrease the Supplies expense and increase Supplies inventory by the amount of supplies on hand at the end of the month ($7,200). Regarding insurance, the adjustment for the expired insurance would reduce the Prepaid Insurance account and recognize an Insurance Expense for the amount that has expired ($7,000).

The insurance adjustment affects the Prepaid Insurance account by decreasing it, reflecting that a portion of the insurance has been used up during the period. In effect, Prepaid Insurance is an asset that gets reduced as the benefit of the insurance is realized over time.

Lastly, for the depreciation on equipment, the Ortiz Company would debit Depreciation Expense and credit Accumulated Depreciation by the amount of the depreciation for the period ($3,100). This adjustment reflects the usage and wear and tear of the equipment over time.