Aubrea Company is making adjustment entries for the year ended Decembe

QUESTION

Aubrea Company is making adjustment entries for the year ended December 31, 2011. In developing information for the adjusting entries, the accountant learned the following:A. A two year insurance premium of $3,600 was paid on October 1 2011 for coverage beginning on that date.B. At December 31, 2011
1 Two years insurance premium $3,600 For One year =3,600/2=1,800 The premium was paid on 1 st Oct 2011 i.e. 3 months prepaid 1,800 *3/12 450 Adjusting entry: 31-Dec Insurance Expenses 450 Pre-paid Insurance 450 (To record pre-paid expenses) 2.. 31-Dec Supplies Expenses 51,000 Supplies 51,000 (To record supplies expenses) 3 31-Dec Amount reported on the Dec 31 Income Statement For Insurance Expenses 450 For Shipping Supplies 51,000 4 31-Dec Amount should be reported on the Dec,31 2011 Balance Sheet On Assets side Pre-paid Insurance 3,150 On Assets side Shipping Supplies 20,000 Effects of adjusting entry on the elements of Balance Sheet and Net Income Balance Sheet Insurance expensest leads to decrease in the net income

hich ultimately leads to decrease in stockholders Equity. 1 Assets Liabilities Stockholders Equity -450 -450 Income Statement Revenues Expenditure Net Income 450 -450 2 Supplies Expenses leads to decrease in the net income,which utlimately leads to decrease in stockholdersEquity . Supplies amounts decreases it leads to decrease in Assets and StockholdersEquity. Assets Liabilities Stockholders Equity -51,000 -51,000 Income Statement Revenues Expenditure Net Income 51,000 -51,000

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