What amount should be reported in the 30 June 2020 statement of financial position for Prepaid Insurance? If no adjusting entry was made on 30 June, by how much would profit be overstated or understated? Would assets be overstated or understated? Explain.
Accounting assignment
Question 1
Recording transactions Jones’ Mower Repairs began operations on 1 August 2019 and completed the following transactions during the first month. 1. Darren Jones deposited $35 000 of his personal funds in a current account at a bank opened in the name of the business. 2. Mower repair equipment was purchased at a cost of $24 000, of which $14 000 was paid in cash. A loan payable was given for the remainder. 3. Darren collected $5000 from customers for repair services performed. 4. Shop rent was paid for the month of August, $1500. 5. Supplies amounting to $2100 were purchased on credit. 6. Wages of $1200 were paid as well as an account for electricity, $250. 7. Darren paid for the supplies purchased in (5) above. 8. Supplies used during August amounted to $750.
Required
(a) Prepare a schedule and list the following Assets, Liabilities and Equity as column headings: Cash at Bank; Supplies; Equipment; Loan Payable; Accounts Payable; D. Jones, Capital.
(b) Show the effects of each of the transactions on the accounts listed. Indicate totals after each transaction and complete the schedule.
(c) Prepare an Income Statement and a Statement of Changes in Equity for the month ended 31 August 2019, and a balance sheet as at 31 August 2019.
Question 2
Adjusting entry for prepaid insurance Kreative Kitchens purchased a 1-year insurance policy on 1 March 2020. The entire premium of $9000 was recorded by debiting Prepaid Insurance. Ignore GST. Required
(a) Give the adjusting entry at 30 June for year ending 30 June 2020.
(b) What amount should be reported in the 30 June 2020 statement of financial position for Prepaid Insurance?
(c) If no adjusting entry was made on 30 June, by how much would profit be overstated or understated? Would assets be overstated or understated? Explain.
(d) What would your adjusting entry in requirement A be if the premium of $9000 was recorded by debiting Insurance Expense?
