Question 1

Rent a Wreck,Inc.began operations on July 1,2012.On July 1,the company paid $9,600 cash in advance for a one-year insurance policy beginning on that day.What will the company report for prepaid insurance on its balance sheet at December 31,2012?

Accepted Answer

The company paid for a one-year insurance policy on July 1, so the total prepaid insurance is $9,600. However, the balance sheet date is December 31, which means the company has used up half of the policy period (6 months). Therefore, the prepaid insurance balance will be $9,600/2 = $4,800.

Question 2

Clean Sweep,Inc.paid $7,200 on May 1,2011 for 12 months' insurance coverage starting May 1.How much insurance expense should appear on the company's income statement for the year ended December 31,2011?

Accepted Answer

Since the insurance coverage started on May 1, 2011, and ended on April 30, 2012, the coverage for the year ended on December 31, 2011, would be for eight months (May-December). Therefore, the insurance expense for the year ended December 31, 2011, would be $4,800 (8/12 x $7,200).

Question 3

Clean Sweep,Inc.started the month of June with $800 worth of cleaning supplies.During the month,Clean Sweep purchased $300 of supplies for cash.At June 30,$200 worth of supplies was unused.How will the company report these events on its statement of cash flows for the month of June?

Accepted Answer

The statement of cash flows only reports cash transactions. Clean Sweep, Inc. paid $300 for supplies in cash, which is the only event among those listed that affects the company's cash flow.

Question 4

Clean Sweep,Inc.started the month of June with $600 worth of cleaning supplies.During the month,Clean Sweep purchased $400 of supplies for cash.At June 30,$300 worth of supplies was unused.How will the company report its unused supplies on June 30?

Accepted Answer

Unused supplies represent an asset. The company will report $300 of unused supplies as an asset on the balance sheet at the end of the month. It is not an expense until the supplies are actually used.

Question 5

Clean Sweep,Inc.started the month of June with $800 worth of cleaning supplies.During the month,Clean Sweep purchased $300 of supplies for cash.At June 30,$200 worth of supplies was unused.How will the company report its unused supplies on June 30?

Accepted Answer

The unused supplies at the end of June represent an asset because they still have value and can be used in future operations. As such, they will appear on the balance sheet as an asset. Option A and B are incorrect because unused supplies do not represent an expense until they are used. Option D is incorrect because $900 is the total value of supplies purchased during the month, which includes both the supplies purchased for cash and the unused supplies, but only the unused supplies should be reported as an asset.

Question 6

Clean Sweep,Inc.started the month of June with $600 worth of cleaning supplies.During the month,Clean Sweep purchased $400 of supplies for cash.At June 30,$300 worth of supplies was unused.How much cleaning supplies expense will the company show on its income statement for the month of June?

Accepted Answer

The total cost of cleaning supplies purchased during the month of June is $600 + $400 = $1,000.
The value of unused supplies at the end of June, $300, is subtracted from the total cost of supplies purchased: $1,000 - $300 = $700.
Therefore, the company will show $700 in cleaning supplies expense on its income statement for the month of June.

Question 7

Rent a Wreck,Inc.began operations on July 1,2012.On July 1,the company paid $9,600 cash in advance for a one-year insurance policy beginning on that day.Cash paid for insurance on the company's statement of cash flows for the month ended July 31,2012 equals ________.

Accepted Answer

The entire amount of $9,600 paid in advance for the insurance policy would be reported as a cash outflow in the month it was paid, which is July 2012.

Question 8

Fair Play,Inc.paid $3,600 on September 1,2011 for an 18-month insurance policy beginning on that day.The company recorded the entire amount as prepaid insurance.How much prepaid insurance should the company show on its balance sheet at December 31,2012?

Accepted Answer

The insurance policy covers 18 months, from September 1, 2011, to February 28, 2013. By December 31, 2012, 16 months of the policy have elapsed, leaving 2 months of coverage. The monthly cost is $3,600 / 18 = $200. Therefore, the prepaid amount for the remaining 2 months is 2 * $200 = $400.

Question 9

Fair Play,Inc.paid $3,600 on September 1,2011 for an 18-month insurance policy beginning on that day.The company recorded the entire amount as prepaid insurance.How much insurance expense should the company show on its income statement for the year ended December 31,2011?

Accepted Answer

The insurance policy is for 18 months, or 1.5 years. Therefore, the annual expense is $3,600/1.5 = $2,400.
For the year ended December 31, 2011, the company used 4 months of the insurance policy (September, October, November, December), or 4/12 = 1/3 of the year.
Therefore, the insurance expense for the year ended December 31, 2011 is 1/3 * $2,400 = $800. 
The prepaid insurance account would have a remaining balance of $3,600 - $800 = $2,800 at the end of the year.

Question 10

Fair Play,Inc.paid $3,600 on September 1,2011 for an 18-month insurance policy beginning on that day.The company recorded the entire amount as prepaid insurance.How much cash paid for insurance should the company show on its statement of cash flows for the year ended December 31,2011?

Accepted Answer

The company paid $3,600 for the insurance policy in cash on September 1, 2011, and this is the amount that should be reflected in the statement of cash flows for the year ended December 31, 2011, as it represents the actual cash outflow for insurance during that period.

Question 11

Clean Sweep,Inc.paid $7,200 on May 1,2011 for 12 months' insurance coverage starting May 1.How much insurance expense should appear on the company's balance sheet at December 31,2011?

Accepted Answer

Insurance expense is reported on the income statement, not the balance sheet. The balance sheet would show any prepaid insurance as an asset, not an expense.

Question 12

Rent a Wreck,Inc.began operations on July 1,2012.On July 1,the company paid $9,600 cash in advance for a one-year insurance policy beginning on that day.What will the company report for prepaid insurance on its balance sheet at July 31,2012?

Accepted Answer

The company will report $8,800 as prepaid insurance on its balance sheet at July 31, 2012, because $800 ($9,600/12 months) of the insurance has been used in July, leaving 11 months or $8,800 of the insurance policy as a prepaid asset.

Question 13

Prepaid insurance had a balance of $1,000 on the company's December 31,2011 balance sheet.On June 1,2012,the company paid an additional insurance premium of $3,000.Prepaid insurance had a balance of $1,250 on the company's December 31,2012 balance sheet.How much insurance expense will be reported on the company's income statement for the year ended December 31,2012?

Accepted Answer

To calculate the insurance expense for the year ended December 31, 2012, we need to determine how much of the prepaid insurance balance from December 31, 2011 was used up during the year and how much of the June 1, 2012 payment applies to the year.

First, we need to determine how much insurance was prepaid as of June 1, 2012:

Prepaid insurance on Dec 31, 2011 = $1,000
Insurance paid on June 1, 2012 = $3,000
Total prepaid insurance as of June 1, 2012 = $4,000 ($1,000 + $3,000)

Next, we need to determine how much of the prepaid insurance was used up during the year ended December 31, 2012:

Prepaid insurance as of June 1, 2012 = $4,000
Prepaid insurance as of Dec 31, 2012 = $1,250
Prepaid insurance used during the year = $2,750 ($4,000 - $1,250)

Finally, we can calculate the insurance expense for the year ended December 31, 2012:

Insurance expense = Prepaid insurance used during the year + Insurance paid during the year
Insurance expense = $2,750 + $3,000
Insurance expense = $5,750

However, we are only interested in the insurance expense for the year ended December 31, 2012. Therefore, the insurance expense for the June 1, 2012 payment ($3,000) needs to be allocated over the 7 months from June 1 to December 31:

Insurance expense for June 1 to Dec 31, 2012 = ($3,000 / 12 months) x 7 months = $1,750

So the total insurance expense for the year ended December 31, 2012 is:

Insurance expense = Prepaid insurance used during the year + Insurance paid during the year (allocated to the year)
Insurance expense = $2,750 + $1,750
Insurance expense = $4,500

Therefore, the best choice is D: $2,750.

Question 14

Clean Sweep,Inc.started the month of June with $800 worth of cleaning supplies.During the month,Clean Sweep purchased $300 of supplies for cash.At June 30,$200 worth of supplies was unused.How much cleaning supplies expense will the company show on its income statement for the month of June?

Accepted Answer

The company began the month with supplies worth $800. 
They purchased an additional $300 worth of supplies during the month. 
At the end of the month, they had unused supplies worth $200. 
Therefore, the total supplies used during the month can be calculated as: 
$800 (beginning supplies) + $300 (additional purchases) - $200 (unused supplies) = $900.

Thus, the cleaning supplies expense on the income statement for the month of June will be $900. Therefore, the answer is option D.

Question 15

On June 1,Stackable,Inc.has a balance of $6,000 in Supplies.During June,the company buys another $2,000 of supplies.On June 30,the company counts the supplies and finds that $800 are left unused.What is the proper adjustment at June 30?

Accepted Answer

The proper adjustment is to decrease Supplies by the amount used, which is $7,200 ($6,000 + $2,000 - $800), and decrease shareholders' equity by the same amount to reflect the expense.

Question 16

Fair Play,Inc.paid $3,600 on September 1,2011 for an 18-month insurance policy beginning on that day.The company recorded the entire amount as prepaid insurance.How much insurance expense should the company show on its income statement for the year ended December 31,2012?

Accepted Answer

The insurance policy covers 18 months, so the monthly insurance expense would be $3,600 / 18 = $200. From September 1, 2011 to December 31, 2012 (16 months), the company would have used up 16/18 of the policy or 8/9 of the prepaid insurance. Thus, the insurance expense for the year ended December 31, 2012 would be (8/9) x $3,600 = $2,400.

Question 17

Fair Play,Inc.paid $3,600 on September 1,2011 for an 18-month insurance policy beginning on that day.The company recorded the entire amount as prepaid insurance.How much prepaid insurance should the company show on its balance sheet at December 31,2011?

Accepted Answer

The insurance policy covers 18 months, so each month costs $200 ($3,600/18). By December 31, 2011, 4 months have passed, costing $800 (4 x $200). Therefore, the remaining prepaid insurance is $2,800 ($3,600 - $800).

Question 18

On January 1,2011,Swinger,Inc.purchases a batting machine for $240,000 that has an estimated useful life of 5 years and an expected residual value of $20,000.What is the effect of this transaction on the company's statement of cash flows for the year ended December 31,2012?

Accepted Answer

The answer of On January 1,2011,Swinger,Inc.purchases a batting machine for...

Question 19

On January 1,2011,Swinger,Inc.purchases a batting machine for $240,000 that has an estimated useful life of 5 years and an expected residual value of $20,000.What is the effect of this transaction on the company's statement of cash flows for the year ended December 31,2011?

Accepted Answer