Question

Midwest Manufacturing purchased a three-year insurance policy for $32,400 on January 2, 2018. Required: 1. Prepare any journal entries, adjusting journal entries, and closing journal entries required on January 2, 2018, December 31, 2018, and December 31, 2019. 2. Prepare the T-accounts for Prepaid Insurance, Insurance Expense, Cash, and Retained Earnings. Assume the January 2, 2018, balances in these accounts were $0, $0, $98,000, and $88,000, respectively. 3-a. Given only the entries for insurance, indicate what amounts would be reported for each of these accounts on the balance sheet prepared on December 31, 2018, and December 31, 2019. 3-b. Given only the entries for insurance, indicate what amounts would be reported for each of these accounts on the income statement prepared on December 31, 2018, and December 31, 2019. Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req За Req 3b Given only the entries for insurance, indicate what amounts would be reported for each of these accounts on the balance sheet prepared on December 31, 2018, and December 31, 2019. Balance Sheet 12/31/2018 12/31/2019 Assets Cash Prepaid Insurance 10,800 Stockholders' Equity Retained Earnings < Req2 Reg 3b >

Answer 1

Answer to Question 1:

Question 1 Date Account Title Debit Credit 02-Jan-18 Prepaid Insurance $ 32,400 Cash $ 32,400 (To record insurance paid in advance for 3 years) Adjusting Entry 31-Dec-18 Insurance Expense 10,800 Prepaid Rent 10,800 (To record insurance expense incurred till 31st December) Insurance Expense = (Total Insurance Amount/Insurance Period) X Time Expired Insurance Expense = ($32,400/3 years) X 1 Year Insurance Expense = $10,800 Closing Entry 31-Dec-18 Retained Earnings 10,800 Insurance Expense (To record closing entry for insurance expense) 10,800 Adjusting Entry 31-Dec-19 Insurance Expense 10,800 Prepaid Rent 10,800 (To record insurance expense incurred till 31st December) Insurance Expense = (Total Insurance Amount/Insurance Period) X Time Expired Insurance Expense = ($32,400/3 years) X 1 Year Insurance Expense = $10,800 Closing Entry 31-Dec-19 Retained Earnings 10,800 Insurance Expense (To record closing entry for insurance expense) 10,800

Answer to Question 2:

02-Jan-18 Cash Prepaid Insurance Insurance $ 32,400 31-Dec-18 Expense Closing 31-Dec-18 Balance $ 10,800 $ 21,600 Beginning 01-Jan-19 Balance $ 10,800 Insurance $ 21,600 31-Dec-19 Expense Closing 31-Dec-19 Balance $ 10,800 Insurance Expense Prepaid Retained 31-Dec-18 Insurance $ 10,800 31-Dec-18 Earnings $ 10,800 Prepaid 31-Dec-19 Insurance $ Retained 10,800 31-Dec-19 Earnings $ 10,800

Answer to Question 2:

Beginning Balance 2-Jan-18 Cash Prepaid 98000 02-Jan-18 Insurance $ Closing 31-Dec-18 Balance $ 32,400 65,600 Beginning 01-Jan-19 Balance Closing 65,600 31-Dec-19 Balance $ $ 65,600 Retained Earnings Beginning Balance $ 10,800 02-Jan-18 88000 Insurance 31-Dec-18 Expense Closing 31-Dec-18 Balance $ 77,200 Beginning Balance $ 10,800 01-Jan-19 $ Insurance 31-Dec-19 Expense Closing 31-Dec-19 Balance 77,200 $ 66,400

Answer to Question 3-a & 3-b:

Question 3-a Balance Sheet 12/31/2018 12/31/2019 Assets $ 65,600 $ 65,600 $ 21,600 $ 10,800 Cash Prepaid Insurance Stockholders Equity Retained Earnings $ 77,200 $ 66,400 Question 3-b Income Statement 12/31/2018 12/31/2019 Insurance Expense $ 10,800 $ 10,800