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Hi,
At 31 December 20X5 the following require inclusion in a company’s financial statements:
1 On 1 January 20X5 the company made a loan of $12,000 to an employee, repayable on 1
January 20X6, charging interest at 2% per year. On the due date she repaid the loan and paid
the whole of the interest due on the loan to that date.
2 The company paid an annual insurance premium of $9,000 in 20X5, covering the year ending
31 August 20X6.
3 In January 20X6 the company received rent from a tenant of $4,000 covering the six months to
31 December 20X5.
For these items, what total figures should be included in the company’s statement of financial position
as at 31 December 20X5?
The answer is :
B Current assets $22,240 Current liabilities $nilI d like to know why the 9000$ not taken into account which is credited to cash and debited to insurance expense in 2005? the double entries are :
Dr:Insurance exp. -9000
Cr:Cash -9000Dr:Prepayment -6000
Cr:Insurance exp -6000In future, if you wish for me to answer then ask in the Ask the Tutor Forum – this forum is for students to help each other.
The cash balance is not relevant to the answer, for two reasons. Firstly, it asks for the figures to be included ‘for these items’, and cash is not one of the items.
Secondly, there will be lots of other things affecting the cash balance which we are not told about. So it is impossible to know what the cash balance is.
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