Question

A company has a fiscal year-end of december 31: (1) on october 1, $12,000 was paid for a one-year fire insurance policy; (2) on june 30 the company lent its chief financial officer $10,000; principal and interest at 6% are due in one year; and (3) equipment costing $60,000 was purchased at the beginning of the year for cash. depreciation on the equipment is $12,000 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.)

Answer 1

debit Insurance expense 3,000
credit Prepaid insurance 3,000
Insurance expense = $12,000 × 3/12 = $3,000


debit Interest receivable 300
credit Interest revenue 300
Interest receivable = $10,000 × 6% × 6/12 = $300


debit Depreciation expense 12,000
credit Accumulated depreciation 12,000