QS 3-7 Adjusting prepaid (deferred) expenses LO P1 For each separate case, record the necessary adjusting entry. On July 1, Lopez Company paid $2,900 for six months of insurance coverage. No adjustments have been made to the Prepaid Insurance account, and it is now December 31. Zim Company has a Supplies account balance of $8,400 at the beginning of the year. During the year, it purchased $3,700 of supplies. As of December 31, a physical count of supplies shows $1,650 of supplies available. Prepare the year-end adjusting entries to reflect expiration of the insurance and correctly report the balance of the Supplies account and the Supplies Expense account as of December 31.

Adjusting Journal Entries:

December 31:

Debit Insurance Expense $2,900

Credit Prepaid Insurance Account $2,900

To record the insurance expense for the year.

Debit Supplies Expense $10,450

Credit Supplies Account $10,450

To record the supplies expense for the year.

Explanation:

a) The whole portion of Prepaid Insurance has expired since payment was made for 6 months on July 1.  This covers the period from July 1 to December 31.

b) The total supplies inventory for the year will be $12,100 ($8,400 + 3,700).  Since the physical count shows $1,650 of supplies available, it means that the difference $10,450 ($12,100 - 1,650) had been used.   This portion is therefore expensed in accordance with the accrual concept.

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answer; /// i believe the correct answer is first in, first out(fifo); //