Analysis of The Company

1. Award: 10 out of 10.00 points  


Arnez Co. follows the practice of recording prepaid expenses and unearned revenues in balance sheet accounts. The company's annual accounting period ends on December 31, 2015. The following information concerns the adjusting entries to be recorded as of that date.

a. The Office Supplies account started the year with a $4,000 balance. During 2015, the company purchased supplies for $13,400, which was added to the Office Supplies account. The inventory of supplies available at December 31, 2015, totaled $2,554.

b. An analysis of the company's insurance policies provided the following facts.

Months of

Policy Date of Purchase Coverage Cost

A April 1, 2013 24 $ 14,400

B April 1, 2014 36 12,960

C August 1, 2015 12 2,400

The total premium for each policy was paid in full (for all months) at the purchase date, and the Prepaid

Insurance account was debited for the full cost. (Year­end adjusting entries for Prepaid Insurance were properly recorded in all prior years.)

c. The company has 15 employees, who earn a total of $1,960 in salaries each working day. They are paid each Monday for their work in the five­day workweek ending on the previous Friday. Assume that December 31, 2015, is a Tuesday, and all 15 employees worked the first two days of that week. Because New Year’s Day is a paid holiday, they will be paid salaries for five full days on Monday, January 6, 2016.

d. The company purchased a building on January 1, 2015. It cost $960,000 and is expected to have a $45,000 salvage value at the end of its predicted 30­year life. Annual depreciation is $30,500.

e. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $3,000 per month, starting on November 1, 2015. The rent was paid on time on November 1, and the amount received was credited to the Rent Earned account. However, the tenant has not paid the

December rent. The company has worked out an agreement with the tenant, who has promised to pay 5both December and January ren/t in full on January 15. The tenant has agreed not to fall behind again.

Worksheet Learning Objective: Learning Objective: 03­P1 Prepare and 03­A1 Compute explain adjusting entries. profit margin and describe its use in analyzing company performance.