Fortress Company paid $1200 on October 1, 2009 for one year of virus protection. The following...

Fortress Company paid $1200 on October 1, 2009 for one year of virus protection. The following journal entry was made:

10/1/09 Prepaid Software Service 1,200

Cash 1,200

The December 31, 2009 adjusting entry is

	A.	debit Prepaid Software Service and credit Software Service Expense. $900
	B.	debit Software Service Expense and credit Prepaid Software Service, $300.
	C.	debit Software Service Expense and credit Prepaid Software Service, $900.
	D.	debit Prepaid Software Service and credit Software Service Expense, $300.

rchased equipment on credit. Which of the following describes the effect of the transaction on the elements of the accounting equation.

	A.	it decreases total assets but not stockholders’ equity
	B.	it decreases total assets and stockholders’ equity
	C.	it increases total assets and stockholders’ equity
	D.	it increases total assets but not stockholders’ equity

Expert Solution

1. The December 31, 2009 adjusting entry is debit Software Service Expense and credit Prepaid Software Service, $300 ( option B ).

Explanation : On October 1, 2009 Fortress company paid $1200 for 1 year in advance. The financial year ends on December 31, 2009. So in the year 2009 only 3 month's expense needs to recorded in the income statement and the rest will be shown as an asset ( prepaid expense ) in the balance sheet.

So, $1200 is paid for 12 months, then $300 [ ( $1200 / 12 ) * 3 ] will be for 3 months.

Thus, by debiting software service expense by $300 in the adjusting entry the expenses for 3 months are getting recorded in the income statement of the year 2009 and by crediting prepaid software service by $300, the balance of prepaid software service account has come down to $900 ( $1200 - $300 ) which will be shown as an asset in the balance sheet.

2. Purchased equipment on credit.

Answer : It increases total assets but not stockholder's equity. ( option D )

Explanation : journal entry for purchase of equipment on credit is : debit equipment and credit accounts payable.

So, in this case by debiting equipment, total aseets will increase and by crediting accounts payable, outsider's liability will increase and thus it has nothing to do with stockholder's equity.

ekkarill92 answered 2 years ago

On October 1 of Year 1 Lesikar Company paid $1,200 cash for an insurance policy that...

On October 1 of Year 1 Lesikar Company paid $1,200 cash for an insurance policy that would provide protection for a one year term. Which of the following shows how the required adjustment on December 31, Year 1 will affect Lesikar’s ledger accounts? Assets = Liabilities + Stockholders’ Equity Cash + Prepaid Insurance = Accounts Payable + Common Stock + Retained Earnings (1,200) 1,200 Assets = Liabilities + Stockholders’ Equity Cash + Prepaid Insurance = Accounts Payable + Common Stock...

On September 1, 2009, Olpe Corporation paid $2,400 in advance for a one year insurance policy...

On September 1, 2009, Olpe Corporation paid $2,400 in advance for a one year insurance policy that covers the period September 1, 2009 through August 31, 2010. What amount of insurance expense should Olpe report for the year endedDecember 31, 2009? A)$800 B)$1,200 C)$2,400 D)$0

A company has a fiscal year-end of December 31: (1) on October 1, $14,000 was paid...

A company has a fiscal year-end of December 31: (1) on October 1, $14,000 was paid for a one-year fire insurance policy; (2) on June 30 the company lent its chief financial officer $12,000; principal and interest at 6% are due in one year; and (3) equipment costing $62,000 was purchased at the beginning of the year for cash. Prepare journal entries for each of the above transactions. (If no entry is required for a transaction/event, select "No journal entry...

A. Paid $6,400 cash in advance on October 1 for a one-year insurance policy. B. Received...

A. Paid $6,400 cash in advance on October 1 for a one-year insurance policy. B. Received an $5,200 cash advance for a contract to provide services in the future. The contract required a one-year commitment, starting April 1. C. Purchased $2,000 of supplies on account. At year’s end, $255 of supplies remained on hand. D. Paid $11,520 cash in advance on August 1 for a one-year lease on office space. The Accounting Equation Event/ Adjustment Total Assets = Liabilities +...

Albinson Company paid $96,000 for a two-year insurance policy on October 1 and recorded the $96,000...

Albinson Company paid $96,000 for a two-year insurance policy on October 1 and recorded the $96,000 as a debit to Prepaid Insurance and a credit to Cash. What adjusting entry should Albinson make on December 31, the end of the accounting period (no previous adjustment has been made)? Select one: A. Insurance Expense 12,000 Prepaid Insurance 12,000 B. Insurance Expense 48,000 Prepaid Insurance 48,000 C. Prepaid Insurance 12,000 Insurance Expense 12,000 D. Prepaid Insurance 84,000 Insurance Expense 84,000

Find Journal entries 1, Company buys $3000 of supplies on account. 2, Company paid $1200 for...

Find Journal entries 1, Company buys $3000 of supplies on account. 2, Company paid $1200 for supplies bought on account #1 . 3, Company paid $5000 for work to be done next year. 4, Company perform service for customer for $2000 and bill on account. 5, Company perform service for a customer for $12000. the customer paid $6000 cash and the remaining is on account. 6, Company buys Equipment for $15000 and pays $5000 cash and the remaining is a...

On March 1, 2009, the premium on a two-year insurance policy on equipment was paid amounting...

On March 1, 2009, the premium on a two-year insurance policy on equipment was paid amounting to $1,800. How would the financial position as of December 31, 2009 (the end of the accounting period) be affected if the accountant did not record the adjusting entry? Select one: a. No accounts will be affected. b. Assets overstated by $750; Liabilities unaffected; Owners' equity overstated by $750. c. Assets understated by $750; Liabilities unaffected; Owners' equity understated by $750. d. Assets understated...

Sheldon Company began Year 1 with $1200 in its supplies account. During the year, the company...

Sheldon Company began Year 1 with $1200 in its supplies account. During the year, the company purchased $3500 of supplies on account. The company paid $2100 on accounts payable by year end. At the end of Year 1, Sheldon counted $1900 of supplies on hand. Sheldon's financial statements for Year 1 would show: $2600 of supplies; $3500 of supplies expense $1900 of supplies; $2800 of supplies expense $1900 of supplies; $1600 of supplies expense $2600 of supplies; $700 of supplies...

1. On June 1, King Company paid $7,200 for one year of advertising, in advance. King...

1. On June 1, King Company paid $7,200 for one year of advertising, in advance. King Company recorded the transaction by debiting Prepaid Advertising and crediting Cash. Required: Journalize the adjusting entry on December 31. Note: Assume that the advertising is used evenly throughout the year 2. By the end of December, Brown Company has completed work, earning $2,500. Brown company has neither billed the clients nor recorded any of the revenue. Required: Journalize the adjusting entry on December 31....

On July 1, a company paid the $1,200 premium on a one-year insurance policy with benefits...

On July 1, a company paid the $1,200 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31? Multiple Choice $500. $600. $300. $1,200. $900.

Question