Question

On August 1, 2021, XYZ purchased a 2 year fire insurance policy from HIJ Company for $24,000.

Copy the entire question(1, 2 and 3) along with the tables below to answer in the same format.

1.) Prepare the adjusting entry for HIJ on 12/31/21 if the original entry was recorded to a temporary account and no additional entries have been made for the year associated with this transaction.

2.) Prepare the adjusting entry for HIJ on 12/31/21 if the original entry was recorded to a permanent account and no additional entries have been made for the year associated with this transaction.

3.) Prepare the adjusting entry if the unadjusted trial balance for XYZ as of 12/31/21 shows a balance of $17,000 in prepaid insurance. If no adjusting entry is required, write no entry required.

Answer 1

Solution:

Requirement 1 if the original entry was recorded to a temporary account the original entry would be: Original Entry Date Accounts Title Debit Credit Aug-1-2021 Insurance Expense $ 24,000 Cash $ 24,000 (Record original entry for insurance policy) Debit Credit Adjusting Entry Date Accounts Title Dec-31-2021 Prepaid Insurance Insurance Expense (Record adjusting entry for insurance expired) $ 19,000 $ 19,000

Requirement 2 if the original entry was recorded to a permanent account the original entry would be: Original Entry Date Accounts Title Debit Credit Aug-1-2021 Prepaid Insurance $ 24,000 Cash $ 24,000 (Record original entry for insurance policy) Credit Adjusting Entry Date Accounts Title Dec-31-2021 Insurance Expense Prepaid Insurance (Record adjusting entry for insurance expired) Debit 5,000 $ $ 5,000

Requirement 3 if unadjusted trial balance shows a balance of $17,000 in prepaid insurance, the entry will be: Adjusting Entry Date Accounts Title Debit Credit Dec-31-2021 Prepaid Insurance $ 2,000 Insurance Expense $ 2,000 (Record adjusting entry for insurance expired)