Fes Company is making adjusting journal entries for the year ended December 31, 2018. In developing information for the adjusting journal entries, you learned the following:
a. A two-year insurance premium of $6,800 was paid on January 1, 2018, for coverage beginning on that date. As of December 31, points 2018, the unadjusted balances were $6,800 for Prepaid Insurance and $0 for Insurance Expense
b. At December 31, 2018, you obtained the following data relating to supplies:
Unadjusted balance in Supplies on December 31, 2018 $13,000
Unadjusted balance in Supplies Expense on December 31, 2018 68,000
Supplies on hand, counted on December 31, 2018 8,400
Required:
1. Of the $6,800 paid for insurance, what amount should be reported on the 2018 income statement as Insurance Expense? What amount should be reported on the December 31, 2018, balance sheet as Prepaid Insurance?
2. What amount should be reported on the 2018 income statement as Supplies Expense? What amount should be reported on t December 31, 2018, balance sheet as Supplies?
3. Indicate the accounting equation effects of the adjustment required for (a) insurance and (b) supplies.

Answer:

Fes Company

1. Amount to report on the 2018 income statement as Insurance Expense

= $3,400

b. Amount to report on the December 31, 2018 balance sheet as Prepaid Insurance

= $3,400

2. Amount to report on the income statement as Supplies Expense

= $72,600

b. Amount to report on the balance sheet as Supplies = $8,400

3. The accounting equation effects of the adjustment for:

a) Insurance

Assets (Prepaid Insurance -$3,400) = Liabilities + Equity (Retained Earnings -$3,400 as Insurance Expense)

b) Supplies

Assets (Supplies - $4,600) = Liabilities + Equity (Retained Earnings -$4,600 in addition to Supplies Expense)

Explanation:

Adjusting Journal Entries:

a.

Debit Insurance Expense $3,400

Credit Prepaid Insurance $3,400

To adjust for expense for the year.

b.

Debit Supplies Expense $4,600

Credit Supplies $4,600

To adjust for used supplies.

Workings:

Supplies

Dec. 31, 2018 Balance   $13,000

Supplies on hand              8,400

Supplies used                 $4,600

Dec. 31 Supplies Expense Balance   $68,000

Supplies used                                       $4,600

Total supplies expense = $72,600

1. When the Amount to report on the 2018 income statement as Insurance Expense

= $3,400

b. When the Amount to report on the December 31, 2018 balance sheet as Prepaid Insurance = $3,400

2. When the  Amount to report on the income statement as Supplies Expense = $72,600

b.  Then the Amount to report on the balance sheet as Supplies is = $8,400

3. After that The accounting equation effects of the adjustment for:

a) Insurance

Assets (Prepaid Insurance -$3,400) = Liabilities + Equity (Retained Earnings -$3,400 as Insurance Expense)

b) Supplies

Assets (Supplies - $4,600) = Liabilities + Equity (Retained Earnings -$4,600 in addition to Supplies Expense)

Adjusting Journal Entries:

a. Debit Insurance Expense $3,400

Credit Prepaid Insurance $3,400

To adjust for expenses for the year.

b. Debit Supplies Expense $4,600

Credit Supplies $4,600

To adjust for used supplies.

Workings:

Supplies

Dec. 31, 2018 Balance   $13,000

Supplies on hand              8,400

Supplies used                 $4,600

Dec. 31 Supplies Expense Balance   $68,000

Supplies used                                       $4,600

Thus the Total supplies expense is = $72,600

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In March 2018, Daniela Motor Financing (DMF), offered some securities for sale to the public. Under the terms of the deal, DMF promised to repay the owner of one of these securities $5,000 in March 2048, but investors would receive nothing until then. Investors paid DMF $850 for each of these securities; so they gave up $850 in March 2018, for the promise of a $5,000 payment 30 years later.

Required:
a. Assuming you purchased the bond for $850, what rate of return would you earn if you held the bond for 30 years until it matured with a value $5,000?
b. Suppose under the terms of the bond you could redeem the bond in 2025. DMF agreed to pay an annual interest rate of 1.3 percent until that date. How much would the bond be worth at that time?
c. In 2025, instead of cashing in the bond for its then current value, you decide to hold the bond until it matures in 2048. What annual rate of return will you earn over the last 23 years?

Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2021. The manufacturing cost of the computers was $19 million. This noncancelable lease had the following terms: Lease payments: $3,060,451 semiannually; first payment at January 1, 2021; remaining payments at June 30 and December 31 each year through June 30, 2025. Lease term: 5 years (10 semiannual payments). No residual value; no purchase option. Economic life of equipment: 5 years. Implicit interest rate and lessee's incremental borrowing rate: 7% semiannually. Fair value of the computers at January 1, 2021: $23 million. What is the outstanding balance of the lease liability in Lone Star's June 30, 2021, balance sheet? (Round your answer to the nearest whole dollar.) Multiple Choice $18,274,866. $18,074,875. $23,000,000. None of these answer choices is correct.