Question

Question: a. On July 1, 2017, Lopez Company paid \(1,200 for six months of insurance coverage. No adjustments

have been made to the Prepaid Insurance account, and it is now December 31, 2017. Prepare the journal

entry to reflect expiration of the insurance as of December 31, 2017.

b. Zim Company has a Supplies account balance of \)5,000 on January 1, 2017. During 2017, it purchased

\(2,000 of supplies. As of December 31, 2017, a supplies inventory shows \)800 of supplies

available. Prepare the adjusting journal entry to correctly report the balance of the Supplies account

and the Supplies Expense account as of December 31, 2017

Short answer

The suppliesexpensehas been debited with $6,200 and the supplies account is credited with $6,200.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of prepaid insurance

A supply account is a type of current asset account that shows the cost of the supplies.

Entry of expiration of prepaid insurance

	Journal entry
Date	Particular	Debit	Credit
December 31, 2017	Supplies Expense	$6,200
	Supplies		$6,200
	(Adjustment entry of supplies expenses

$$\begin{gathered} \text{Supplies} \text{Expense =} \text{Beginning} \text{Balance +} \text{Supplies} \text{Purchased -} \text{Ending} \text{balance} \text{of} \text{supplies} \\ \text{=} \text{\$ 5,000} \text{+} \text{\$ 2,000} \text{-} \text{\$ 800} \\ \text{= \$ 6,200} \end{gathered}$$