7. The prepaid insurance account has a $8,000 beginning balance. Additional insurance premiums in the amount...
7. The prepaid insurance account has a $8,000 beginning balance. Additional insurance premiums in the amount of $12,000 were paid during the year. At year-end, there is $3,000 of insurance coverage remaining. The entry needed to adjust the account is:
A. Prepaid Insurance 12,000
Cash 12,000
B. Insurance Expense 17,000
Prepaid Insurance 17,000
C. Insurance Expense 3,000
Prepaid Insurance 3,000
D. Prepaid Insurance 17,000
Insurance Expense 17,000
8. Speedy Accounting Services agreed to perform services for a client at a rate of $4,000 per month. A six-month prepayment was made in advance on October 1, 2019 and services began on that date. December 31, 2019 is the end of Speedy’s accounting year. What is the October 1, 2019 entry to record the prepayment?
A. Cash 4,000
Unearned Revenue 4,000
B. Unearned Revenue 12,000
Service Revenue 12,000
C. Unearned Revenue 24,000
Cash 24,000
D. Cash 24,000
Unearned Revenue 24,000
9. Refer to Question 8. What is the entry to make the necessary adjustment on December 31, 2019? (Speedy Accounting adjusts their books only at the end of the year.)
A. Unearned Revenue 12,000
Service Revenue 12,000
B. Unearned Revenue 12,000
Cash 12,000
C. Unearned Revenue 4,000
Service Revenue 4,000
D. Service Revenue 12,000
Unearned Revenue 12,000
Thank you for your help, please explain how you got to your answers.
Homework Answers
7.
Prepaid insurance, beginning = $8,000
Insurance premium paid during the year = $12,000
Prepaid insurance, ending = $3,000
Insurance expense = Prepaid insurance, beginning + Insurance premium paid during the year - Prepaid insurance, ending
= 8,000 + 12,000 - 3,000
= $17,000
Hence, the entry needed to adjust the account is : Debit Insurance expense by $17,000 and credit prepaid insurance by $17,000.
Correct option is (B)
8.
Service revenue = $4,000 per month
Six months revenue was received in advance on Oct 1. Since revenue was received in advance and hence, cash should be debited and unearned revenue should be credited by $24,000 on Oct 1.
Correct option is (D)
9.
On Dec 31, 2019, services have been provided for 3 months (From Oct 1 to Dec 31). Hence, revenue should be recognized for 3 months on Dec 31.
Service revenue of $12,000 (4,000 x 3) should be credited and unearned revenue should be debited by $12,000 on Dec 31, 2019.
Correct option is (A)
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