Question

Brief Exercise 3-5 On July 1, 2017, Major Co. pays $27,600 to Cruz Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending December 31. For Major Co., journalize and post the entry on July 1 and the annual adjusting entry on December 31. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Answer 1

Answer: Please see below

Explanation:

Journal to record the Adjusting entry for Major Co payment  to Cruz Insurance

Date      Account                                Debit                      Credit

July 1    Prepaid insurance            $27, 600

                    Cash                                                             $27,600

Date                    Account                    Debit                      Credit

Dec 31      Insurance expense           $4,600

                  Prepaid insurance                                            $4,600

Working : July - december= 6months, insurance contract= 3 years(3x12months =36months )

Insurance expense = $27,600 x  

(6/36)= $4,600