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23 January, 07:03

As of December 31, Plush has not recorded any insurance expense for the year. The only insurance policy it owns is the one purchased on July 10, a three year insurance policy for $72,000 starting on August 1st. Make a general journal entry.

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  1. 23 January, 07:49
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    Debit Insurance expense $10,000

    Credit Prepaid Insurance $10,000

    Being entries to recognize insurance expense for the period (August to December).

    Explanation:

    Given;

    Insurance policy was purchased on July 10 to run for 3 years.

    Cost of policy = $72,000

    Start date is August 1st. As at 31 December, the policy should have been amortized for 5 months (August to December)

    Monthly depreciation = $72,000 / (3 * 12)

    = $2,000

    Total amortization between August and December = 5 * $2,000

    = $10,000

    Journal entries

    Debit Insurance expense $10,000

    Credit Prepaid Insurance $10,000

    Being entries to recognize insurance expense for the period (August to December).
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