Fes Company is making adjusting journal entries for the year ended December 31, 2015. In developing information for the adjusting journal entries, you learned the following:

Fes Company is making adjusting journal entries for the year ended December 31, 2015. In developing information for the adjusting journal entries, you learned the following:

a.	A two-year insurance premium of $7,800 was paid on January 1, 2015, for coverage beginning on that date. As of December 31, 2015, the unadjusted balances were $7,800 for Prepaid Insurance and $0 for Insurance Expense.
b.	At December 31, 2015, you obtained the following data relating to supplies.

Unadjusted balance in Supplies on December 31, 2015	$	18,000
Unadjusted balance in Supplies Expense on December 31, 2015		78,000
Supplies on hand, counted on December 31, 2015		12,400

Required:
1.	Of the $7,800 paid for insurance, what amount should be reported on the 2015 income statement as Insurance Expense? What amount should be reported on the December 31, 2015, balance sheet as Prepaid Insurance?

Indicate the accounting equation effects of the adjustment required for (a) insurance and (b) supplies. (Enter any decreases to account balances with a minus sign.)

Explanation:

1.

2015 Income statement:

Insurance Expense ($7,800 × 12/24) = $3,900 used.

2015 Balance sheet:

Prepaid Insurance ($7,800 × 12/24) = $3,900

2.

2015 Income statement:

Supplies Expense $78,000 + ($18,000 – $12,400) = $83,600 used.

2015 Balance sheet:

Supplies (given) = $12,400