Question

A company has a fiscal year-end of December 31: (1) on October 1, $20,000 was paid for a one-year fire insurance policy; (2) on June 30 the company advanced its chief financial officer $18,000; principal and interest at 8% on the note are due in one year; and (3) equipment costing $68,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $13,600 per year.

Prepare the necessary adjusting entries at December 31 for each of the above items. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Transactions:

1.      On October 1, $20,000 was paid for a one-year fire insurance policy.

2.      On June 30 the company lent its chief financial officer $18,000; principal and interest at 8% are due in one year.

3.      Equipment costing $68,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $13,600 per year.

Answer 1

No	Transaction	General Journal	Debit	Credit
1	1	Insurance   expense	5000
		Prepaid insurance		5000
			($20,000 / 12 months) x 3 months (October-December) = 5000
2	2	Interest   receivable	720
		Interest revenue		720
			($18,000 x 0.08) / 12 months = 120 $120 per month x 6 months = $720 at 6 months (June to December)
3	3	Depreciation   Expense	13,600
		Accumulated depreciation			13,600
			Depreciation on the equipment is $13,600