Question

On April 16, Joseph Carpenter formed a corporation, Carpenter Printing, to be operated as a printing business. On April 18, Carpenter Printing issued shares of common stock in exchange for $32,081 in cash; and $45,574 in office furniture, printing equipment, computers, and design software. The furniture and equipment have an estimated residual value of $6,258, and an estimated useful life of 9 years. The furniture and printing equipment, with software installed, will be delivered on May 2, and will be depreciated using the most common method. On April 20, Carpenter Printing signed a 1 year rental contract for office space, at a cost of $3,061 per month, beginning May 1. On April 21, Carpenter Printing signed a 1 year insurance contract for a comprehensive insurance policy with coverage beginning May 1. The cost of the insurance contract is $415. There a 2 options for making the insurance payment: half may be paid by May 2 and half plus a $12 fee may be paid by July 2; or the full amount may be paid by May 2. On April 22, after signing an agreement with its bank for Positive Pay, Carpenter Printing issued two checks. Check 101 paid the rent in advance for 2 months; Check 102 paid the full amount of the insurance payment. On April 25, the bank notified Carpenter Printing that 1 check(s) had been presented for payment, but that no electronic file for a check run had been received. Carpenter Printing sent the confirming electronic file to the bank on April 26. On May 5, Carpenter Printing’s application for credit with a printing supplies vendor was approved and Carpenter Printing purchased supplies on account for $21,241. On May 10, Carpenter Printing printed brochures in a massive advertising campaign for the new business, using $4,887 of the supplies. What is the effect of these transactions on the Total Current Assets on the Balance Sheet on May 31? I know the answer is 45,339.42 but how do you get this number?

Answer 1

Compute total current assets as follows

Current Assets	Amount
Cash	$25,544.00
Prepaid rent	$3,061.00
Prepaid Insurance	$380.42
Supplies	$16,354.00
Total Current Assets	$45,339.42

Notes: Compute cash balance as follows

Particulars	Amount
Common stock issued for cash	$32,081
Prepaid office rent (Check 101) ($3,061× 2 months)	($6,122)
Prepaid insurance (Check 102)	($415)
Cash balance - May 31	$25,544

Compute prepaid rent balance on May 31 as follows

Particulars	Amount
Prepaid Office Rent - Unadjusted balance	$6,122
Deduct Office Rent Expense for the Month of May	($3,061)
Prepaid Office Rent - May 31	$3,061

Compute prepaid insurance balance on May 31 as follows

Particulars	Amount
Prepaid Insurance	$415.00
Deduct: Insurance Expense for the Month of May ($415 ÷ 12)	($34.58)
Prepaid insurance - May 31	$380.42

Compute supplies balance on May 31 as follows

Particulars	Amount
Supplies - Unadjusted balance	$21,241
Deduct Supplies Expense for the Month of May	($4,887)
Supplies - May 31	$16,354