Analyzing Accounts Using Adjusted Data Selected T-account balances for Fields Co
ID: 2328279 • Letter: A
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
Explanation / Answer
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:
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.
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 = Total Truck Cost ÷ Useful Life of the asset
Monthly Depreciation expense = $34,800 ÷ 60 Months = $580
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
Amount a. Monthly Insurance expense $328 b. Insurance Period 12 months c. Total Insurance Premium (a x b) $3,936