Question

On July 1, 2020, Sheffield Co. pays $10,480 to Tamarisk Insurance Co. for a 2-year insurance policy. Both companies have fiscal years ending December 31. Journalize the entry on July 1 and the adjusting entry on December 31 for Tamarisk Insurance Co. Tamarisk uses the accounts Unearned Service Revenue and Service Revenue. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)

Answer 1

Answer:

Explanation:

The journal entry is shown below:  

On July 1

Prepaid Insurance A/c Dr $10,480

         To Cash A/c $10,480

(Being prepaid insurance is paid)

On December 31

Insurance expense A/c Dr $2,620

         To Prepaid Insurance $2,620

(Being prepaid insurance is adjusted)

The computation is shown below:

= $10,480 ÷ 2 years × 6 months ÷ 12 months

= $2,620