Book 2 - Chapter 4

Reinforcement Problems
LG 4-1.

Information Example

The key information
type is . . .

To determine the cost used up, you need to . . .

1. On April 1, Madison Company prepaid $1,750 for five service repair calls. On June 30, the trial balance shows a balance of $1,750 in the Prepaid Repairs account, after three repair jobs have been done.

the cost per unit
of the asset
(five service jobs)

calculate the cost per unit of the asset (in units of jobs)

2. The balance of the Spare Parts Supplies account on the trial balance is $14,550. A physical count shows $1,500 of the supplies remaining at year end..

the asset cost
remaining

subtract the asset cost remaining from the unadjusted balance of the Prepaid Expense account

3. On October 1, Fox Valley Company purchased a 12-month fire insurance policy for $9,000. The year-end trial balance on January 31 shows $9,000 of Prepaid Fire Insurance. The trial balance also shows $2,500 of Insurance Expense, which does not include the cost of any fire insurance.

the cost per unit
of the asset
(12 months)

calculate the cost per unit of the asset (units of time)

4. Wisconsin Grand Hotel provides each guest with a complimentary bar of soap. The unadjusted trial balance shows $17,500 of soap supplies at year end. At year end, a physical count shows $3,500 of soap supplies actually remaining. (Soap Expense is recorded only at year end.)

the asset cost remaining

subtract the asset cost remaining from the unadjusted balance of the Prepaid Expense account

5. Blue Mountain Corporation has a December 31 year end. On December 31, year end, an analysis of the unadjusted balance of the Prepaid Insurance shows:
	Policy Type	Date Purchased	Amount
	Fire	July 10	$5,000
	Liability	May 1	$2,100
	Flood	Oct. 20	$7,500
	The insurance agent verifies that $900 worth of the fire policy is still in force, as well as $1,000 of the liability policy and $2,750 of the flood policy.

the asset cost
actually
remaining

subtract the asset cost remaining from the unadjusted balance of the Prepaid Expense account

6. On June 30, year end, the trial balance of Milwaukee Company showed an ending balance of $2,110 in the Prepaid Rent account. This represents the rent for May and June. $10,550 of rent expense is showing in the final trial balance.

the asset cost
used up

interpret the statement to determine the portion that is used up

Learning Goal 4

SOLUTIONS

Learning Goal 4: Prepare Adjusting Entries for Prepaid Expenses

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