Question

Aubrae Company is making adjusting entries for the year ended December 31 of the current year. In developing information for the adjusting entries, the accountant learned the following:

a. A two-year insurance premium of $4,560 was paid on October 1 of the current year for coverage beginning on that date. The bookkeeper debited the full amount to Prepaid Insurance on October 1.
b. At December 31 of the current year, the following data relating to Shipping Supplies were obtained from the records and supporting documents.

Shipping on hand, January I of the current year $13,000
Purchases of shipping supplies during the current year 75,000
Shipping hand, counted on December 31 of the current year 20,000

Required:
a. Using the process illustrated in the chapter, record the adjusting entry for insurance at December 31 of the current year.
b. Using the process illustrated in the chapter, record the adjusting entry for supplies at December 31 of the current year, assuming that the shipping supplies purchased during the current year were debited in full to the account Shipping Supplies.
c. What amount should be reported on the current year’s income statement for Insurance Expense? For Shipping Supplies Expense?
d. What amount should be reported on the current year’s balance sheet for Prepaid Insurance? For Shipping Supplies?

Answer 1

Aubrae Company

Adjusting Journal Entries:

a. Insurance:

Debit Insurance expense $570

Credit Prepaid Insurance $570

To record insurance expense for 3 months.

b. Shipping supplies:

Debit Shipping supplies expense $68,000

Credit Shipping supplies $68,000

To record shipping supplies expense for the year.

Step-by-step explanation:

a) Data and Analysis of Adjusting Entries:

a. Insurance expense $570 Prepaid Insurance $570

($4,560/24 * 3)

b. Shipping supplies expense $68,000 Shipping supplies $68,000

Insurance Expense:

Prepaid insurance = $4,560 for 24 months

Each month equals $190

Expense for October to December = $570 ($190 * 3)

Shipping expense:

Shipping on hand, January I of the current year $13,000

Purchases of shipping supplies during the current year 75,000

Shipping hand, December 31 of the current year (20,000)

Shipping supplies used during the current year = $68,000