I had a quiz of 10 questions today in accounting class and I was stuck on 2 questions. Although the quiz doesn't count for anything, I still want to know how to go about those 2 questions.
The first question was: The beginning balances in the Supplies account is 13500. The ending balance is 17500. Over the year, the company spends 15000 on supplies, of which 10000 are debited from the Supplies Expense account and the remaining 5000 debited from the Supplies Account. What is the adjusting entry?
I simply came up with 13500+5000 in the supplies account equals 18500. Thus a 1000 credit in the Supplies account would adjust the amount to equal 17500. Also a 1000 debit to Supplies Expense would balance the debit and credit (if you also consider the Cash account).
The second question was: A company prepays rent for 2 years each time it renews its lease. The Dec 31 2010 balance sheet displayed 9000 in the prepaid rent account. The company renewed its lease on Nov 1 2011. What is the prepaid rent and the rent expense the company reports at the end of 2011.
I figured that since the company had 9000 dollars left at the end of December and that the amount would last the months of January through October (10 months), the amount per month would come to 9000/10 = 900. The prepaid rent would equal (900x24) - (900-x2) = 19800. This is because they prepaid rent for 2 years at the beginning of November (so 900x24), but the amounts for November and December would be removed so take away 900x2. The rent expense would simply be 900x12 = 10800.
Now answers had these numbers had options. The options were 22000 prepaid and 12000 expense, 21000 prepaid and 12000 expense, 22000 prepaid and 11000 expense and 21000 prepaid and 11000 expense. Many of my friends answered 22000 prepaid and 12000 expense and the only way this is possible, with the method that I/they used, is if the monthly expense comes to 1000 for rent. I don't understand how though.
The first question was: The beginning balances in the Supplies account is 13500. The ending balance is 17500. Over the year, the company spends 15000 on supplies, of which 10000 are debited from the Supplies Expense account and the remaining 5000 debited from the Supplies Account. What is the adjusting entry?
I simply came up with 13500+5000 in the supplies account equals 18500. Thus a 1000 credit in the Supplies account would adjust the amount to equal 17500. Also a 1000 debit to Supplies Expense would balance the debit and credit (if you also consider the Cash account).
The second question was: A company prepays rent for 2 years each time it renews its lease. The Dec 31 2010 balance sheet displayed 9000 in the prepaid rent account. The company renewed its lease on Nov 1 2011. What is the prepaid rent and the rent expense the company reports at the end of 2011.
I figured that since the company had 9000 dollars left at the end of December and that the amount would last the months of January through October (10 months), the amount per month would come to 9000/10 = 900. The prepaid rent would equal (900x24) - (900-x2) = 19800. This is because they prepaid rent for 2 years at the beginning of November (so 900x24), but the amounts for November and December would be removed so take away 900x2. The rent expense would simply be 900x12 = 10800.
Now answers had these numbers had options. The options were 22000 prepaid and 12000 expense, 21000 prepaid and 12000 expense, 22000 prepaid and 11000 expense and 21000 prepaid and 11000 expense. Many of my friends answered 22000 prepaid and 12000 expense and the only way this is possible, with the method that I/they used, is if the monthly expense comes to 1000 for rent. I don't understand how though.