Question

For each separate case, record the necessary adjusting entry. On July 1, Lopez Company paid $2,000 for six months of insurance coverage. No adjustments have been made to the Prepaid Insurance account, and it is now December 31. Zim Company has a Supplies account balance of $6,600 at the beginning of the year. During the year, it purchased $2,800 of supplies. As of December 31, a physical count of supplies shows $1,200 of supplies available. Prepare the year-end adjusting 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.

Answer 1

The adjusting entry for Lopez Company will involve debiting Insurance Expense for $1,000 and crediting Prepaid Insurance for $1,000. For Zim Company, the necessary entry is to debit Supplies Expense for $8,200 and credit Supplies for $8,200. These entries ensure the matching principle is followed and the balance sheet accurately represents the company's assets.

Step-by-step explanation:

Adjusting Entries for Insurance and Supplies

For Lopez Company, the adjusting entry on December 31 for the insurance premium would be:

Debit Insurance Expense: $1,000 (reflecting the expense for July through December, which is 6 months)

Credit Prepaid Insurance: $1,000 (to reduce the asset by the amount used)

For Zim Company, the supplies account balance needs to be adjusted based on the physical count. The adjusting entries would be:

Debit Supplies Expense: $8,200 (the beginning balance of $6,600 plus purchases of $2,800, minus the ending balance of $1,200)

Credit Supplies: $8,200 (to record the used supplies)

These entries ensure that expenses are recorded in the period they are incurred (matching principle), and the balance sheet reflects the correct values for Prepaid Insurance and Supplies.

Answer 2

Adjusting Entries

December 31

Dr. Insurance Expense $2,000

Cr. Prepaid Insurance $2,000

December 31

Dr. Supplies Expense $8,200

Cr. Supplies account $8,200

Step-by-step explanation:

On December 31, six months have been accrued and all of the amounts of prepaid insurance became accrued. hence it will be recorded as an expense.

Now calculate the supplies expense using the following formula

Supplies expense = Beginning Supplies + Purchases during the year - Ending Supplies = $6,600 + $2,800 - $1,200 = $8,200