Question

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

1) Prepare the adjusting entry for DEF 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 DEF 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 ABC 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

In the books of DEF
Adjusting Entries
Date	Particulars			Debit	Credit
1)	Service Revenue			$ 19,000.00
	To Unearned Service Revenue				$ 19,000.00
	[$ 24000 - ($ 24000 x 5/24)]
2)	Unearned Service Revenue			$   5,000.00
	To Service Revenue				$   5,000.00
	($ 24000 x 5/24)
In the books of DEF
Adjusting Entries
Date	Particulars			Debit	Credit
3)	Prepaid Insurance			$   2,000.00
	To Insurance Expense				$   2,000.00
	($ 19000 - $ 17000)

Please let me know whether these are correct or not. Thank you