On July 1, 2020, Indigo Co. pays $9,400 to Sweet Insurance Co. for a 2-year insurance policy. Both companies have fiscal years ending December 31. For Indigo Co., journalize the entry on July 1 and the adjusting entry on December 31. (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.)

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Business

Mariana Townsend

7 August, 21:51

On July 1, 2020, Indigo Co. pays $9,400 to Sweet Insurance Co. for a 2-year insurance policy. Both companies have fiscal years ending December 31. For Indigo Co., journalize the entry on July 1 and the adjusting entry on December 31. (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.)

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Lola Duncan · Answer 1

The journal entries are shown below:

On July 1

Prepaid insurance A/c Dr $9,400

To Cash A/c $9,400

(Being the prepaid insurance for cash is recorded)

On December 31

Insurance expense A/c Dr $2,350

To Prepaid insurance A/c $2,350

(Being the insurance expense is recorded)

The computation is shown below:

= Prepaid insurance amount : number of years * number of months : total number of months in a year

= $9,400 : 2 years * 6 months : 12 months

= $2,350