Question

Analyzing Accounts Using Adjusted Data Selected T-account balances for Fields Company are shown below as of January 31, 2014; adjusting entries have already been posted. The firm uses a calendar-year accounting period but prepares monthly adjustments. Supplies (A) Jan.31 Bal 3,200 Supplies Expense (E) Jan.31 Bal 3,840 Prepaid Insurance (A) Jan.31 Bal 2,296 Insurance Expense (E) Jan.31 Bal 328 Wages Payable (L) Jan.31 Bal 2,000 Wages Expense (E) Jan.31 Bal 12,800 Truck (A) Jan.31 Bal 34,800 Accumulated Depreciation-Truck (XA) Jan.31 Bal 9,860 (a) If the amount in Supplies Expense represents the January 31 adjustment for the supplies used in January, and $2,480 worth of supplies were purchased during January, what was the January 1 beginning balance of Supplies? $Answer 4,560 (b) The amount in the Insurance Expense account represents the adjustment made at January 31 for January insurance expense. If the original insurance premium was for one year, what was the amount of the premium and on what date did the insurance policy start? $Answer 3,936 May 1, 2013 June 1, 2013 July 1, 2013 August 1, 2013 September 1, 2013 October 1, 2013 November 1, 2013 (c) If we assume that no beginning balance existed in Wages Payable or Wages Expense on January 1, how much cash was paid as wages during January? $Answer 10,800 (d) If the truck has a useful life of five years, what is the monthly amount of depreciation expense? $Answer 580 How many months has Fields owned the truck? Answer 17 months

Answer 1

a. Calculation of January 1 beginning balance of Supplies

Given details,

Ending Stock of Supplies (Jan 31) = $3,200

Supplies Purchases during January = $2,840

Supplies Consumption during January = $3,840

Formula to Calculate Clsoing Stock of Supplies -

Ending Stock (Jan 31) = Beginning Stock (Jan 01) + Purchases during Jan - Consumption during Jan

Therefore, from the above formula we can derive the following -

Beginning Stock (Jan 01) = Ending Stock (Jan 31) + Consumption during Jan -  Purchases during Jan

Beginning Stock (Jan 01) = $3,200 + $3,840 - $2,480

Beginning Stock (Jan 01) = $4,560

b. Calculation of Insurance premium and date on which Insurance Starts

Calculation of Insurance premium:

	Amount
a. Monthly Insurance expense	$328
b. Insurance Period	12 months
c. Total Insurance Premium (a x b)	$3,936

Date on which Insurance Starts

Given details,

Ending Prepaid Insurance (Jan 31) = $2,296

Insurance Expense For the month of January = $328

Period covered by Insurance = 1 Year

Step 1 - Calculation of Unexpired Period of Insurance

Prepaid insurance balance as on 31 January represents Insurance for future months (Unexpired period of Insurance)

So lets calculate this Unexpired period of Insurance -

Unexpired Insurance period = Prepaid Insurance as on Jan 31 ÷ Monthly Insurance

Unexpired Insurance period = $2,296 ÷ $328

Unexpired Insurance Period = 7 months

Step 2 - Calculation of Expired period of Insurance

We have Unexpired Insurance period = 7 months

Total Insurance perid = 1 Year = 12 Months

Total Insurance perid = Unexpired Insurance period + Expired Period of Insurance

Therfore,

Expired Period of Insurance = Total Insurance period - Unexpired Insurance period

Expired Period of Insurance = 12 months - 7 months

Expired Period of Insurance = 5 Months.

Step 3 - Determining the date on which Insurance Starts

Expired Insurance period as on Januray 31, 2014 is 5 Months. If we back calculate 5 months from Jan 31, 2014, date would be September 1, 2013.

Total Insurance -12 Months - $3936	Unexpired Insurance Period - 5 Months - $1,640	September 01, 2013
		October 01, 2013
		November 01, 2013
		December 01, 2013
		January 01, 2014
	Unexpired Insurance Period - 7Months - $2,296	February 01, 2014
		March 01, 2014
		April 01, 2014
		May 01, 2014
		June 01, 2014
		July 01, 2014
		August 01, 2014

c. Calculation of amount of wages paid During January

Given Details,

Wage Expense during January = $12,800

Wages Payable as on January, 31 =$2,000

Wages paid during January = Total Wages - Wages payable = $12,800 - $2,000 = $10,800

d. Calculation of monthly depreciation expense and Number of months has Fields owned the truck

Given details,

Truck cost = $34,800

Accumulated depreciation until January 31 = $9,860

Useful Life of the Truck = 5 Years = 5 Years x 12 = 60 Months

• Monthly Depreciation Expense

Monthly Depreciation expense = Total Truck Cost ÷ Useful Life of the asset

Monthly Depreciation expense = $34,800 ÷ 60 Months = $580

• Number of months has Fields owned the truck

Accumulated depreciation until January 31 = $9,860

Monthly depreciation = $580

Therefore,

Number of months has Fields owned the truck = Accumulated depreciation ÷ Monthly depreciation

Number of months has Fields owned the truck = $9,860 ÷ $580 = 17 Months