130 Chapter 3 Adjusting Accounts for Financial Statements Connect On March 1, 20
ID: 2329434 • Letter: 1
Question
130 Chapter 3 Adjusting Accounts for Financial Statements Connect On March 1, 2015, a company paid an $18,000 premium on a 36-month insurance policy for coverage beginning on that date. Refer to that policy and fill in the blanks in the following table EXERCISES Exercise 3-1 Determining assets and expenses for accrual and cash accounting Balance Sheet Prepaid Insurance Asset Using Insurance Expense Using Accrual Basis Cash Basis Accrual Basis Cash Basis C2 Dec. 31.2015 Dec. 31, 2016 Dec. 31. 2017 Dec. 31.2018 2015 2016 2017 $ Check 2017 insuronce expense: Accrual, $6,000 Cash, $0 Total $ Dec 31,2017, asset Acc 1000 Cash, 50 233Explanation / Answer
Balance Sheet Prepaid Insurance Asset Using
Accrual basis
Cash Basis
Dec. 31, 2015
$13000
$0
Dec. 31, 2016
$7000
$0
Dec. 31, 2017
$1000
$0
Dec. 31, 2018
$0
$0
Insurance Expense Using
Accrual basis
Cash Basis
Dec. 31, 2015
$5000
$18000
Dec. 31, 2016
$6000
$0
Dec. 31, 2017
$6000
$0
Dec. 31, 2018
$1000
$0
Total
$18000
$18000
Explanation;
1. Prepaid Insurance Asset using accrual basis;
Total premium amount = $18000
Number of months = 36
Per month insurance expense ($18000 / 36) = $500
On Dec. 31, 2015, total insurance expense expired ($500 * 10) = $5000
Thus prepaid insurance assets on this date ($18000 - $5000) = $13000
On Dec. 31, 2016, total insurance expense expired ($500 * 22) = $11000
Thus prepaid insurance assets on this date ($18000 - $11000) = $7000
On Dec. 31, 2017, total insurance expense expired ($500 * 34) = $17000
Thus prepaid insurance assets on this date ($18000 - $17000) = $1000
2. Insurance Expense using accrual basis;
Total premium amount = $18000
Number of months = 36
Per month insurance expense ($18000 / 36) = $500
On Dec. 31, 2015, total insurance expense expired ($500 * 10) = $5000
On Dec. 31, 2016, total insurance expense expired ($500 * 12) = $6000
On Dec. 31, 2017, total insurance expense expired ($500 * 12) = $6000
On Dec. 31, 2018, total insurance expense expired ($500 * 2) = $1000
Balance Sheet Prepaid Insurance Asset Using
Accrual basis
Cash Basis
Dec. 31, 2015
$13000
$0
Dec. 31, 2016
$7000
$0
Dec. 31, 2017
$1000
$0
Dec. 31, 2018
$0
$0
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