On April 1, Year 1, Colonial Bookstore bought an insurance policy costing $24,000 that would insure...
On April 1, Year 1, Colonial Bookstore bought an insurance policy costing $24,000 that would insure the retail building for two years against fire loss.
What is the journal entry to record the purchase?
What adjusting entry is needed at December 31, Year 1?
Homework Answers
Insurance is purchased for 2 years or 24 month.
Per month insurance expense = $24000/24 = $1000
Entry for purchasing insurance policy
| Particular | debit | credit |
| Prepaid insurance account | $24000 | |
| Bank account | $24000 | |
Till December 31 , insurance expense to be recognized for 9 months. Which will be $9000.
Entry will be
| Particular | debit | credit |
| Insurance premium expense | $9000 | |
| Prepaid insurance account | $9000 |
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