Question

On July 1, 2017 , Sandhill Co. pays $22,000 to Cullumber Company for a 2-year insurance contract. Both companies have fiscal years ending December 31.
For Sandhill Co., Journalize the entry on July 1 and adjusting entry on December 31.
Date Account Titles and Explanation Debit Credit
____
____

Answer 1

Answer:

Entry on July 1

Debit : Prepaid Insurance $22,000

Credit : Cash $22,000

Entry on December 31

Debit : Insurance expense $11,000

Credit : Prepaid Insurance $11,000

Explanation:

When Sandhill Co. pays we must decrease their cash account with the amount paid (credit entry) and increase the asset of insurance to the be enjoyed for 2 years (debit)

During the year 2017, one year insurance has been utilized. Therefore reduce the assets of Prepaid Insurance (credit) by recognizing an expense - Insurance expense (debit).