Chapter 4, Problem 6E

Determining Adjustments and Accounting Equation Effects

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:

1. a. A two-year insurance premium of $7,200 was paid on January 1, 2018, for coverage beginning on that date. As of December 31, 2018, the unadjusted balances were $7,200 for Prepaid Insurance and $0 for Insurance Expense.
2. b. At December 31, 2018, you obtained the following data relating to supplies.

Required:

1. 1. Of the $7,200 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. 2. What amount should be reported on the 2018 income statement as Supplies Expense? What amount should be reported on the December 31, 2018, balance sheet as Supplies?
3. 3. Using the format shown in the demonstration case, indicate the accounting equation effects of the adjustment required for (a) insurance and (b) supplies.