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Chapter 3: Question 5BE (page 128)

BE3-5 (L02,3) Assume that on February 1, Procter & Gamble (P&G) paid $720,000 in advance for 2 years鈥� insurance coverage. Prepare P&G鈥檚 February 1 journal entry and the annual adjusting entry on June 30.

Short Answer

Expert verified

The amount of prepaid insurance used is $150,000.

Step by step solution

01

Meaning of Prepaid Insurance

Payment of premium by insured to insurer entity before the due date is prepaid insurance. It is current assets for the insured therefore shown in the balance sheet under the sub-head of current assets.

02

Journal Entries

Date

Accounts and Explanation

Debit $

Credit $

Feb 1

Prepaid Insurance

$720,000

Cash

$720,000

June 30

Insurance expenses

$150,000

Prepaid insurance ($720,000 x 5/24)

$150,000

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Most popular questions from this chapter

Do the following events represent business transactions?

Explain your answer in each case

  1. A computer is purchased on account.
  2. A customer returns merchandise and is given credit on account.
  3. A prospective employee is interviewed
  4. The owner of the business withdraws cash from the business for personal use.
  5. Merchandise is ordered for delivery next month.

The adjusted trial balance of Anderson Cooper Co. as of December 31, 2017, contains the following.

ANDERSON COOPER CO.

ADJUSTED TRIAL BALANCE

DECEMBER 31, 2017

Dr.

Cr

Cash

\(19,472

Accounts Receivable

6,920

Prepaid Rent

2,280

Equipment

18,050

Accumulated Depreciation鈥擡quipment

\) 4,895

Notes Payable

5,700

Accounts Payable

5,472

Common Stock

20,000

Retained Earnings

11,310

Dividend

3,000

Service Revenue

11,590

Salaries and Wages Expense

6,840

Rent Expense

2,260

Depreciation Expense

145

Interest Expense

83

Interest Payable

83

\(59,050

\)59,050

Instructions

(a) Prepare an income statement.

(b) Prepare a statement of retained earnings.

(c) Prepare a classified balance sheet.

A review of the ledger of Baylor Company at December 31, 2017, produces the following data pertaining to the preparation of annual adjusting entries.

  1. Salaries and Wages Payable \(0. There are eight employees. Salaries and wages are paid every Friday for the current week. Five employees receive \)700 each per week, and three employees earn \(600 each per week. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.

  2. Unearned Rent Revenue \)429,000. The company began subleasing office space in its new building on November 1. Each tenant is required to make a \(5,000 security deposit that is not refundable until occupancy is terminated. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.

    Date

    Term (in months)

    Monthly Rent

    Number of Leases

    Nov. 1

    6

    \)6,000

    5

    Dec. 1

    6

    \(8,500

    4

  3. Prepaid Advertising \)13,200. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are as shown below.

    Contract

    Due date

    Amount

    Number of magazine issue

    A650

    May 1

    \(6,000

    12

    B974

    Oct. 1

    7,200

    24

    The first advertisement runs in the month in which the contract is signed

  4. Notes Payable \)60,000. This balance consists of a note for one year at an annual interest rate of 12%, dated June 1.

    Instructions

    Prepare the adjusting entries at December 31, 2017. (Show all computations).

What are adjusting entries and why are they necessary?

BE3-4 (L02,3) Using the data in BE3-3, journalize the entry on July 1 and the adjusting entry on December 31 for Zubin Insurance Co. Zubin uses the accounts Unearned Service Revenue and Service Revenue.
See all solutions

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