A company has a fiscal year-end of December 31: (1) on October 1, $27,000 was pa

Question

A company has a fiscal year-end of December 31: (1) on October 1, $27,000 was paid for a one-year fire insurance policy; (2) on June 30 the company lent its chief financial officer $25,000; principal and interest at 7% are due in one year; and (3) equipment costing $75,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $15,000 per year.
  
Prepare the necessary adjusting entries at December 31 for each of the above items. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Adjusting entry :

Date account and explanation debit credit Dec 31 Insurance expense (27000*3/12) 6750 Prepaid insurance 6750 (To record insurance expense) Dec 31 Interest receivable (25000*7%*6/12) 875 Interest revenue 875 (To record interest) Dec 31 Depreciation expense 15000 Accumlated depreciation 15000 (To record depreciation expense)

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