X Company prepares annual financial statements. On July 1, 2015, X Company paid

Question

X Company prepares annual financial statements. On July 1, 2015, X Company paid $28,000 in advance for a two-year insurance policy. After the adjusting entry on December 31, 2015, what will the financial statements show?

Prepaid Insurance, $28,000;   Insurance expense, $0
Prepaid Insurance, $7,000;   Insurance expense, $21,000
Prepaid Insurance, $0;   Insurance expense, $28,000
Prepaid Insurance, $21,000;   Insurance expense, $7,000
Prepaid Insurance, $3,500;   Insurance expense, $24,500
Prepaid Insurance, $24,500;   Insurance expense, $3,500

Explanation / Answer

TOTAL ADVANCE PAID FOR TWO YEAR INSURANCE POLICY = $28000

INSURANCE EXPENSES FOR ONE YEAR ($28000 / 2) = $14000

INSURANCE EXPENSES FOR 6 MONTHS (I;E FROM JULY TO DECEMBER) = $7000

BALANCE PRPAID INSURANCE ($28000 - $7000) =$21000

SO ANSWER IS  PREPAID INSURANCE, $21,000;   INSURANCE EXPENSE, $7,000

Related Questions

Navigate

• Browse (All)
• Browse X
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.