Question

On July 1, 2017, Lopez Company paid $2,600 for six months of insurance coverage. No adjustments have been made to the Prepaid Insurance account, and it is now December 31, 2017. Zim Company has a Supplies account balance of $7,800 on January 1, 2017. During 2017, it purchased $3,400 of supplies. As of December 31, 2017, a supplies inventory shows $1,500 of supplies available.

Required:
Prepare the journal entries to reflect expiration of the insurance and correctly report the balance of the Supplies account and the Supplies Expense account as of December 31, 2017.

Answer 1

a.

Date Account Title Debit Credit

Dec. 31, 2017 Insurance expense $2,600

Prepaid insurance $2,600

b.

Date Account Title Debit Credit

Dec. 31, 2017 Supplies Expense $9,700

Supplies $9,700

Working

Supplies = Beginning balance + Purchases - Closing balance

= 7,800 + 3,400 - 1,500

= $9,700