1· (28 points) The following list of accounts and their balances represents the

Question

1· (28 points) The following list of accounts and their balances represents the unadjusted trial balance of Alt Company at December 31, 2017: Cash Equity Investments (trading) $29,090 60,000 69.000 Accounts Receivable Allowance for Doubtful Accounts Inventory Prepaid Rent Plant Assets Accumulated Depreciation-Plan Assets Accounts Payable $500 54,720 36,000 160,000 4,740 11,370 90,000 170,000 97,180 214,800 Bonds Payable Common Stock Retained Earnings Sales Revenue Cost of Goods Sold Freight-Out Salaries and Wages Expense Interest Expense Rent Revenue Miscellaneous Expense Insurance Expense 154,400 11,000 32,000 2,040 21,600 890 Additional Data: 1. The balance in the Insurance Expense account contains the premium costs of three policies: Policy 1, remaining cost of $2,550, 1-yr. term, taken out on May 1, 2016; Policy 2, original cost of $7,200, 3-yr. term, taken out on Oct. 1, 2017 Policy 3, original cost of $1,300, 1-yr. term, taken out on Jan. 1,2017 2. On Sentem

Explanation / Answer

Below are the adjusting entries for insurance expenses .

Policy 1                               

                Note 1: For Insurance policy#1 when actual payment was made, the whole amount should have been charged to prepaid instead of Insurance and as and when the month is complete that portion should be amortized.

                Note2: ($2,550/12=$212.5 per month) assuming insurance expenses for 8 months from May 2016 to Dec 2016 should have been amortized from prepaid insurance and remaining 4 months expenses has been recorded in 2017 hence no adjusting entries required in 2017.   

Policy 2

                                Prepaid Insurance - Debit                             $6,600

                                ($7,200/36 = $200 per month * 33 months)

                                                Insurance expenses - Credit                       $6,600

                (recording advance payment made to insurance policy for 3 years after expensing 3 insurance expense for 2017)

Policy 3

                Note 3: Policy 3 was taken on Jan1,2017 for a period of 12 months and entire 12 months insurance expenses has been expensed to profit and loss account, hence no adjustment required.

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