BE3-5 On July 1, 2012, Spahn Co. pays $18,000 to Randle Insurance Co. for a 3-ye
ID: 2345287 • Letter: B
Question
BE3-5On July 1, 2012, Spahn Co. pays $18,000 to Randle Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending, December 31. For Spahn Co., journalize the entry on July 1 and the adjusting entry on December 31.
Date Account/Description Debit Credit
July 1
Dec. 31
Using T accounts, enter the balances in the accounts below, post the adjusting entry as necessary, and indicate the adjusted balance in each account. (If there is no entry, enter NA for the date and 0 for the amount.)
Prepaid Insurance
12/31 Bal. 12/31 Bal.
Insurance Expense
Explanation / Answer
July 1
Debit: Prepaid insurance 18,000
Credit Cash 18,000
To record the purchase of a 3-year insurance policy
Dec. 31
Debit: Insurance expense 3,000
Credit: Prepaid insurance 3,000
To record the expiration of 6 months of insurance
Insurance Expense
Prepaid insurance
18000
3000
bal. 12/31
15000
Prepaid insurance
18000
3000
bal. 12/31
15000
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