Question

1)Grey Co paid $2,448 cash on September 30 to rent an arena for the months of October, November and December. Grey prepares monthly financial statements.

Rent expense reflected on the November income statement will be $_________

2) Bailey Corporation, prepares the following adjustments required at the end of the month on July 31: Before these adjustments, Bailey had assets of $70,000, Liabilities of $50,000 and Stockholders’ equity of $20,000. Here are the adjustments made:

a. Received a $724 utility bill for electricity usage in July to be paid in August.

b. Owed wages to 4 employees who worked four days at $80 each per day at the end of July. The company will pay employees at the end of the first week of August.

c. On July 1, loaned money to an employee who agreed to repay the loan in one year along with $1,800 for one full year of interest. No interest has been recorded yet.

After the adjustments stockholders’ equity on 7/31 will be $________

3)On August 1, 2018 Risky Ventures paid $2,040 for insurance coverage for twelve months of coverage beginning August 1. On December 31, Risky Ventures will report what dollar amount related to insurance on the Balance Sheet? $______

4)Assume Bella Donna’s General Store bought, on credit, a truckload of merchandise from American Wholesaling costing $1,920. The company paid $244 in transportation cost to National Trucking to deliver the merchandise to Bella Donna. Bella Donna immediately returned goods to American Wholesaling costing $550, and then took advantage of American Wholesaling’s 2/10, n/30 purchase discount.

At the end of the period the inventory account will have a balance of $_________

Answer 1

Solution

Q1. Grey Co

Rent expense reflected on the November income statement will be $816

Prepaid rent for 3 months (oct, nov and Dec) = $2,448

Monthly rent expense = 2,448/3 = $816

Q2. Bailey Corporation

Accrued expenses –

Utility Expense           $724

Salaries expense         $1,280             (4 employees x 4 days x $80 = $1,280)

Total expenses            $2,004

Interest Revenue         $150

Net expenses $1,854

After adjustments stockholders equity on 7/31 will be $18,146

($20,000 – 1,854) = $18,146

Q3. Risky Ventures

On December 31, Risky Ventures would report insurance as follows,

Balance Sheet at December 31

Assets

Current Assets

Prepaid Insurance       $1,190

Computations:

Insurance expense for the months Aug through December (5 months) = 2,040 x 5/12 = $850

Balance in Prepaid Insurance account = 2,040 – 850 = $1,190

Q4. Bella Donna’s General Store

Inventory account balance at the end of the period –

Purchases        $1,920

Freight paid    244

Returns           (550)

Inventory account balance = $1,614

Note: the 2% 10-day discount period payment provides cash discount on payment towards accounts paayble and does not affect the inventory value.