Q7E - Intermediate Accounting (Kieso)

Question

E3-7 (L03) (Analyze Adjusted Data) A partial adjusted trial balance of Piper Company at January 31, 2017, shows the following.  

PIPER COMPANY

ADJUSTED TRIAL BALANCEJANUARY 31, 2017

 

Debit (\()                       Credit(\))Supplies \( 700Prepaid Insurance 2,400Salaries and Wages Payable \) 800UnearnedService Revenue 750Supplies Expense 950Insurance Expense 400Salaries and Wages Expense 1,800Service Revenue 2,000

 

InstructionsAnswer the following questions, assuming the year begins January 1.(a) If the amount in Supplies Expense is the January 31 adjusting entry, and \(850 of supplies was purchased in January,what was the balance in Supplies on January 1?(b) If the amount in Insurance Expense is the January 31 adjusting entry, and the original insurance premium was for oneyear, what was the total premium and when was the policy purchased?(c) If \)2,500 of salaries was paid in January, what was the balance in Salaries and Wages Payable at December 31, 2016?(d) If $1,600 was received in January for services performed in January, what was the balance in Unearned Service Revenueat December 31, 2016?

Step-by-Step Solution

Answer

(a)Supplies on January 1 are $800

(b) Purchased the premium policy in August 2016.

(c) Salaries and wages payable on December 31, 2016, are $100

(d) Unearned service revenue on December 31 2016, was $350

Step 1: Meaning of Trial balance

A trial balance means a worksheet that lists all the ending balances of the ledger accounts on their respective debit or credit side.

Step 2: Calculation of Supply balance on January 1

$\begin{array}{c}\\ \text{Supply\hspace{0.17em}balance\hspace{0.17em}January\hspace{0.17em}}1=\text{Supply\hspace{0.17em}balance\hspace{0.17em}January\hspace{0.17em}}31+\text{Supplies\hspace{0.17em}Expenses\hspace{0.17em}}-\text{Purchases\hspace{0.17em}}\\ =\$700+\$950-\$850\\ =\$1650-\$850\\ =\$800\end{array}$

The supply balance on January 1 is$800

Step 3: Calculation of total insurance purchase

Calculation of insurance expense per year 

 $\begin{array}{c}\\ \text{Insurance\hspace{0.17em}Expense\hspace{0.17em}per\hspace{0.17em}year\hspace{0.17em}(Total\hspace{0.17em}premium)}=\text{Insurance\hspace{0.17em}Expense\hspace{0.17em}per\hspace{0.17em}month}\times 12\\ =\$400\times 12=\$4800\\ \end{array}$

Calculation of prepaid insurance balance at the beginning of the year

$\begin{array}{c}\text{Prepaid\hspace{0.17em}insurance\hspace{0.17em}balance\hspace{0.17em}}(\text{beginning)}=\text{Prepaid\hspace{0.17em}insurance}+\text{Insurance\hspace{0.17em}premium}\\ =\$2,400+\$400\\ =\$2,800\end{array}$

 Calculation of Insurance purchased  

 $\begin{array}{c}\text{Insurance\hspace{0.17em}purchased\hspace{0.17em}monthly}=\frac{\text{Insurance\hspace{0.17em}expense\hspace{0.17em}per\hspace{0.17em}year}-\text{prepaid insurance(beginning)}}{\text{Insurance\hspace{0.17em}expense\hspace{0.17em}per\hspace{0.17em}month}}\\ =\frac{\$4,800-\$2,800}{\$400}\\ =5\text{\hspace{0.17em}months}\end{array}$

Premium purchased for (Total premium) $4800

Premium purchased month is August 2016 (5 months before January which means August, September, October, November and December)

Step 4: Calculation of salaries and wages payable on December 31, 2016

$\begin{array}{c}\\ \text{Salaries\hspace{0.17em}and\hspace{0.17em}wages\hspace{0.17em}payable\hspace{0.17em}at\hspace{0.17em}December\hspace{0.17em}}31,2016=\text{Salaries\hspace{0.17em}expenses\hspace{0.17em}}+\text{Wages\hspace{0.17em}payable}-\text{Salaries\hspace{0.17em}paid}\\ =\$1800+\$800-\$2500\\ =\$2600-\$2500\\ =\$100\end{array}$

Salaries and wages payable on December 31, 2016, are$100

Step 5: Calculation of unearned service revenue on December 31 2016

 $\begin{array}{c}\\ \text{Unearned\hspace{0.17em}service\hspace{0.17em}revenue\hspace{0.17em}at\hspace{0.17em}Dec}31,2016=\text{Cash\hspace{0.17em}received\hspace{0.17em}}-\text{Service\hspace{0.17em}revenue}+\text{Unearned\hspace{0.17em}service\hspace{0.17em}revenue on\hspace{0.17em}Jan\hspace{0.17em}}31\\ =\$1600-\$2000+\$750\\ =-\$400+\$750\\ =\$350\end{array}$

Unearned service revenue on December 31 2016, was $350