Question 3BE
Question
BE3-3 (L02,3) On July 1, 2017, Crowe Co. pays $15,000 to Zubin Insurance Co. for a 3-year insurance policy. Both companies have fiscal years ending December 31. For Crowe Co., journalize the entry on July 1 and the adjusting entry on December 31
Step-by-Step Solution
Verified Answer
The value of prepaid insurance expensed till December 31, 2017, is $2,500.
1Meaning of Adjusting Entries
Adjusting real accounts needs to be filed at year-end using the adjusting journal entries so that the financial statements will have an effect on transactions relating to the current year. It is required only for accrual accounting.
2Journal Entries
Date | Accounts and Explanation | Debit $ |
July 1, 2017 | Prepaid Insurance | $15,000 |
| Cash |
|
|
|
|
December 31, 2017 | Insurance expenses | $2,500 |
| Prepaid insurance ($15,000 x ½ x 1/3) |
|
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