Question

A company has a fiscal year-end of December 31: (1) on October 1, $22,000 was paid for a one-year fire insurance policy; (2) on June 30 the company lent its chief financial officer $20,000; principal and interest at 6% are due in one year; and (3) equipment costing $70,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $14,000 per year. Prepare the necessary adjusting entries at December 31 for each of the above items. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Date	Title	Debit	Credit
1	Insurance expense ($22,000/12*3)	$    5,500
	Prepaid insurance		$    5,500
2	Insurance receivable ($20,000*6%*6/12)	$        600
	Interest revenue		$        600
3	Depreciation expense	$ 14,000
	Accumulated depreciation - Equipment		$ 14,000

Insurance expense has to be calculated only for 3 months and interest revenue has to be calculated only for 6 months

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