QS 3-4 Preparing adjusting entries (annual)-prepaid expense LO4 July 1, 2017 Dec

Question

QS 3-4 Preparing adjusting entries (annual)-prepaid expense LO4 July 1, 2017 Dec. 31, 2017 Jan. Mar. May Sept. Nov. Jan. Mar. May ly Sept.Nov. July Feb. Feb. une Au Oet Apr 2017 Dee. Feb.Apr. June Aug. Oct.Dec 2018 Insurance coverage Juiy 1 2017 to June 30, 2018 Stud Muffin Bakery prepares financial statements on an annual basis and has a December 31, 2017 year- end. On July 1, 2017, the bakery purchased a one-year insurance policy for $12,000 cash. The insurance policy covers July 1, 2017 to June 30, 2018. a. How much does the insurance policy cost per month? b. How many months are between July 1, 2017 and December 31, 2017? e. Record the journal entry on July 1,2017 d. In order to prepare ann the annual financial statements, record the adjusting journal entry on December 31, 2017.

Explanation / Answer

Solution a:

Insurance policy cost per month = Cost for the year / Nos of months = $12,000 /12 = $1,000 per month

Solution b:

Nos of months between July 1, 2017 to December 31, 2017 = 6 months

Solution c:

Solution d:

Journal Entries Date Particulars Debit Credit 1-Jul-17 Prepaid Insurance Dr $12,000.00        To Cash $12,000.00 (To Record payment of insurance premium)

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