Reference no: EM132840348
Problem - ABC Corporation engaged you to audit their financial statements as of and for the period ended December 31, 2020. They presented the following balances of their prepayments as of December 31, 2020. Prepaid expenses account consists of the following:
Prepaid advertising 640,000
Prepaid insurance 490,000
Prepaid rent 420,000
Unused office supplies 361,000
Relevant information related to the prepayments are as follows:
ABC Corp renewed its contract with an advertising agency for the annual promotion as well as the regular advertisement of its products. It paid a total of 640,000, 100,000 of which is for the Christmas promotion, while the balance is for the regular promotion which will run for one year starting on August 1, 2020. Payment was made on July 20, 2020, and the total amount was reflected as prepaid advertising.
The company leases the main office and store in Taguig City at a monthly rental of 140,000. On November 5, 2020, a check for 420,000 was issued in payment of three-month rental as per renewal contract which was effective on November 1, 2020. Rental deposit remained at three months and is included under Other Assets.
The company's delivery equipment is insured with Standard Insurance Corporation for a total coverage of 2.4 million. Total payment made on November 16, 2020 for the renewal amounted to 490,000 which covers the period from November 1, 2020 to November 1, 2021. No adjustment has been made as of December 31, 2020.
To take advantage of volume discount ranging from 10% to 20%, the company buys office and store supplies on a bulk basis. The staff-in-charge bought supplies worth 220,000 on June 10, 2020 and included the same in their office supplies inventory. As at year-end, unused office supplies amount to 102,500.
Required -
1. What should be the correct balance of prepaid insurance at year end 2020?
2. What should be the correct balance of prepaid rent at year end 2020?
3. What should be the correct balance of prepaid advertising at year end 2020?
4. What should be the correct balance of office and store supplies at year end 2020?
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