31E_2 - Horngren'S Financial And Managerial Accounting

Question

Question :At the beginning of the year, office supplies of \(1,200 were on hand. During the year, Tempo Air Conditioning Service paid \)4,000 for more office supplies. At the end of the year, Tempo has $800 of office supplies on hand. Requirements 1. Record the adjusting entry assuming that Tempo records the purchase of office supplies by initially debiting an asset account. Post the adjusting entry to the Office Supplies and Supplies Expense T-accounts. Make sure to include the beginning balance and purchase of office supplies in the Office Supplies T-account. 2. Record the adjusting entry assuming that Tempo records the purchase of office supplies by initially debiting an expense account. Post the adjusting entry to the Office Supplies and Supplies Expense T-accounts. Make sure to include the beginning balance in the Office Supplies T-account and the purchase of office supplies in the Supplies Expense T-account. 3. Compare the ending balances of the T-accounts under both approaches. Are they the same?

Step-by-Step Solution

Answer

Adjusting entries are as follows:

Date	Accounts and Explanation	Debit	Credit
	Supplies Expense	$400
	Office Supplies		$400
	To record office supplies used.

 

T accounts are as follows: 

Office Supplies
	$1,200	$400
Bal.	$800

 

Supplies Expense
	$4,000
	400
Bal.	$4,400

 

Step-by-Step-Solution Step1: Calculation of Actual Office Supplies Used

Actual Office Supplies Used is calculated as follows: 

$$\begin{gathered} \mathbf{ActualOfficeSuppliesUsed}\mathbf{=}\mathbf{BeginningBalance}+\mathbf{Purchases}-\mathbf{OfficeSuppliesonHand} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{200}+\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{800} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{400} \end{gathered}$$

Step 2: Calculation of Adjustment for Office Supplies Used

Adjustment for Office Supplies Used is calculated as follows: 

$$\begin{gathered} \mathbf{Adjustmentfor}\mathbf{OfficeSuppliesUsed}\mathbf{=}\mathbf{ActualOfficeSuppliesUsed}-\mathbf{RecordedOfficeSuppliesUsed} \\ \mathbf{=}\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{400}-\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{400} \end{gathered}$$