Question

Use the following information to answer questions 1-5.

The Aggie Graphics Company was organized on January 1, 2017.

The trial balance before adjustment at December 31, 2017 contained the following account balances:

Cash	$9,500
Accounts Receivable	4,000
Prepaid Insurance	1,800
Equipment	45,000
Accumulated Depreciation		4,500
Accounts Payable		3,500
Notes Payable		18,000
Common Stock		5,000
Retained Earnings		12,000
Dividend	2,000
Graphic Fees Earned		52,100
Consulting Fees Earned		5,000
Salaries Expense	30,000
Supplies Expense	2,700
Advertising Expense	1,900
Rent Expense	1,500
Utilities Expense	1,700
	$100,100	$100,100

Analysis reveals the following additional data: (Assume the books are only closed at year end)

(A)    The $2,700 balance in Supplies Expense represents supplies purchased in January. At December 31,  there was $1,200 of supplies on hand.

(B)    The note payable was issued on September 1. It is a 3% 6-month note.

(C)    The balance in Prepaid Insurance is the premium paid on a one-year policy, dated March 1, 2017.

(D)    Consulting Fees are credited to revenue when received. At December 31, consulting fees of $1,000 contracted for January, 2017 have yet to be performed.

(E)    The equipment was purchased on January 1, 2017. It has a 10-year useful life and no salvage value.

The entry to record (A) above would include a debit to: (Assume the company is only making one adjusting entry to record this information)

	A.	Supplies for $1,500
	B.	Supplies for $1,200
	C.	Supply Expense for $1,200
	D.	Prepaid Supply Expense for $2,700

1 points   

QUESTION 2

What is the balance in the interest payable account after adjustment?

	A.	$ 45
	B.	$180
	C.	$90
	D.	$270

1 points   

QUESTION 3

The correct entry to record (E) above is:

	A.	Depreciation Expense               4,500                 Accumulated Depreciation                4,500
	B.	Depreciation Expense                9,000                  Accumulated Depreciation               9,000
	C.	Depreciation Expense                9,000                  Equipment                                        9,000
	D.	Depreciation Expense                9,000                 Accumulated Depreciation                4,500                 Equipment                                         4,500

Answer 1

Solution:

Question 1 --

The entry to record (A) above would include a debit to:

The correct option is B. Supplies for $1,200 (Balance Sheet Item)

Explanation – The Company recorded All the Supplies purchase in January as Supplies Expense. At the end of Dec 31, Supplies in hand was $1,200 it means $1,200 is Supplies which will be shown in Balance Sheet as Supplies under Current Assets.

So, we need to reduced the Supplies Expense by $1,200 and Debit the Supplies (Balance Sheet Item).

Question 2 ---

What is the balance in the interest payable account after adjustment?

The correct option is B. $180

Explanation -- Notes was issued on Sept 1 and has 3% interest rate for 6 month.

So, from Sept 1 to Dec 31, total 4 months interest to be recorded.

4 months Interest Expense = $18,000*3%*4/12 = $180

Question 3 –

The correct entry to record (E) above is:

The correct option is

A.	Depreciation Expense               4,500                 Accumulated Depreciation                4,500

One year depreciation = (Cost of Equipment $45,000 – Salvage Value 0) / Life 10 = $4,500

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you