NEAP 2010 Q 2.2.1 & 2.3.2

[cleo_xo]

How did they calculate the insurance expense?

[Akirus]

This is actually an easy question, they just threw in lots of irrelevant information to throw you off.

Key points:

-paid for until Oct 31st.
-balance at Jan 1st is $2000.

From this, we can calculate that the $2000 is divided over 10 months.

$2000/10 = $200 a month.

6 month reporting period => 6 * 200 = $1200.

[cleo_xo]

when i first did it i used 12 months, why do we use 10?

[inspire]

cuz it said it was paid in advance on 31 october that means they have already deducted 2 months insurance as they prepare reports every 6 months

1 january -> 30 june

from 31 october to 1 jan they have already used two months of insurance

[cleo_xo]

in 2.3.2 why does owner's equity decrease? so because of the payment of wages expense decreases but wouldn't that mean owner's equity increases? i mean logically because of A = L + OE you would know it has to be decrease but why?? hope that makes sense lol

[Buharrr]

owners equity decreases because there was an expense of 400 for wages that would increase the expense account and thus decrease the net profit account which is reported in the BALANCE SHEET (as asked by the question ) in the owners equity section.

we do not report expenses in the balance sheet but refer to it through the net profit figure which in this case decreases owner's equity.

remember to refer to the question and if it says affect on balance sheet it would be a decrease or increase on net profit (for a similar situation).

i hope this makes sense

[cleo_xo]

ohhh yes it does thank you

[naved_s9994]

 can anyone explain depreciation and interest in 2.2.1

btw people, did you find this exam any challenging?