Spiffy is a retailer. Like many retailers, Spiffy\'s fiscal year ends on January
ID: 2566228 • Letter: S
Question
Spiffy is a retailer. Like many retailers, Spiffy's fiscal year ends on January 31, after the holiday shopping season. On October 1, 2012, Spiffy paid $17,250 cash for a 12-month insurance policy that took effect on October 1. What is the adjusting journal entry that Spiffy should record on January 31, 2013 (the end of its fiscal year) with regard to the insurance? The dollar amount involved is 5,750 [17,250 x 4/12 = 5,750]. But what accounts are used for the journal entry? To deepen your understanding, think back to what the journal entry was on October 1 when the insurance was first purchased. How are the accounts brought up to date on January 31?Explanation / Answer
Solution:
Part 1 – Adjusting entry that Spiffy should record on January 31, 2013
Insurance paid $17,250 on Oct 1 for 1 year (i.e. 12 months).
On January 31, 2013 insurance paid is expired for 4 months and it should be recorded as Insurance Expense.
Insurance Expense to be recorded for 4 months = $17,250*4/12 = $5,750
Date
Account Titles and Explanation
Debit
Credit
Jan.31, 2013
Insurance Expense
$5,750
Prepaid Insurance
$5,750
(Insurance expired for 4 months and recorded as expense)
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Pls ask separate question for remaining part.
Date
Account Titles and Explanation
Debit
Credit
Jan.31, 2013
Insurance Expense
$5,750
Prepaid Insurance
$5,750
(Insurance expired for 4 months and recorded as expense)
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