Question

Reed Co. records accounting transactions and events during the period and makes adjustments at the end of the period. Record the following transactions in the indicated manner and give the adjusting entry on December 31, 2019. (Two entries for each question.)

1) An insurance policy for two years was acquired on April 1, 2019 for $18,000.

2) Rent of $12,000 for six months for a portion of the building was received on November 1, 2019.

Answer 1

Journal

No	Date	Account Title and Explanation	Debit	Credit
1.	April 1, 2019	Prepaid insurance	18,000
		Cash		18,000
		(To record prepaid insurance)
	Dec 31, 2019	Insurance expense	6,750
		Prepaid insurance		6,750
		(To record prepaid expenses)
2.	Nov 1, 2019	Prepaid rent	12,000
		Cash		12,000
		(To record prepaid rent)
	Dec 31, 2019	Rent expense	4,000
		Prepaid rent		4,000
		(To record rent expense)

1.

Insurance expense for 2 year = $18,000

Insurance expense for 9 months (From Apr 1, 2019 to Dec 31, 2019) = 18,000 x 9/24

= $6,750

2.

Rent expense for 6 months = $12,000

Rent expense for 2 months (From Nov to Dec ) = 12,000 x 2/6

= $4,000