Question

Service Pro Corp. (SPC) is preparing adjustments for its September 30 year-end. For the following transactions and events, show the September 30 adjusting entries SPC would make. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) a. Prepaid Insurance shows a balance of zero at September 30, but Insurance Expense shows a debit balance of $2,700, representing the cost of a three-year fire insurance policy that was purchased on September 1 of the current year. b. On August 31 of this year, Cash was debited and Service Revenue was credited for $1,800. The $1,800 related to fees for a three- month period beginning September 1 of the current year. c The company's income tax rate is 39%. After making the above adjustments, SPC's net income before tax is $10,000. No income tax has been paid or recorded. View transaction list es Journal entry worksheet 3 <> Record the adjusting entry for Insurance expense of $2,700 representing the cost of a three-year fire insurance policy that was purchased on September 1 of the current year. Note: Enter debits before credits. Transaction General Journal Debit Credit Record entry Clear entry View general journal

Answer 1

a) 2625 2625 Prepaid Insurance Insurance Expense (Being Insurance of coming years transferred to Prepaid Insurance) b) 1200 Service Revenue Unearned Service Revenue (To record unearned service revenue) 1200 3900 Income Tax Expense Income Tax Payable (Being provision made for income tax expense) 3900

Explanation:

a) Insurance Expense = 2700 / 36 months x 1 month = 75

So, Prepaid Insurance = 2700 - 75 = 2625

b) Unearned Service Revenue = 1800 x 2/3 = 1200

c) Income Tax Expense = 10000 x 39% = 3900