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Chapter 3: Question 3BE (page 128)

BE3-3 (L02,3) On July 1, 2017, Crowe Co. pays $15,000 to Zubin Insurance Co. for a 3-year insurance policy. Both companies have fiscal years ending December 31. For Crowe Co., journalize the entry on July 1 and the adjusting entry on December 31

Short Answer

Expert verified

The value of prepaid insurance expensed till December 31, 2017, is $2,500.

Step by step solution

01

Meaning of Adjusting Entries

Adjusting real accounts needs to be filed at year-end using the adjusting journal entries so that the financial statements will have an effect on transactions relating to the current year. It is required only for accrual accounting.

02

Journal Entries

Date

Accounts and Explanation

Debit $

July 1, 2017

Prepaid Insurance

$15,000

Cash

December 31, 2017

Insurance expenses

$2,500

Prepaid insurance ($15,000 x ½ x 1/3)

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Most popular questions from this chapter

LaBouche Corporation owns a warehouse. On November 1, it rented storage space to a lessee (tenant) for 3 months for a total cash payment of $2,400 received in advance. Prepare LaBouche’s November 1 journal entry and the December 31 annual adjusting entry.

Becker Ltd. is planning to adopt IFRS and prepare its first IFRS financial statements at December 31, 2018. What is the date of Becker’s opening balance sheet, assuming one year of comparative information? What periods will be covered in Becker’s first IFRS financial statements?

Name the accounts debited and credited for each of the following transactions.

  1. Billing a customer for work done.
  2. Receipt of cash from customer on account.
  3. Purchase of office supplies on account.
  4. Purchase of 15 gallons of gasoline for the delivery of truck.

BE3-10 (L03) At the end of its first year of operations, the trial balance of Alonzo Company shows Equipment \(30,000 and zero balances in Accumulated Depreciation—Equipment and Depreciation Expense. Depreciation for the year is estimated to be \)2,000. Prepare the adjusting entry for depreciation at December 31, and indicate the balance sheet presentation for the equipment at December 31.

The financial statements of (M&S) are presented in Appendix E. The company's complete annual report, including the notes to the financial statements, is available online.

Instructions

Refer to M&S’s financial statements and the accompanying notes to answer the following questions.

(a) What were M&S’s total assets on 28 March 2015? On 29 March 2014?

(b) How much cash (and cash equivalents) did M&S have on 28 March 2015?

(c) What were M&S’s selling and marketing expenses in 2015? In 2014?

(d) What were M&S’s revenues in 2015? In 2014?

(e) Using M&S’s financial statements and related notes, identify items that may result in adjusting entries for prepayments and accruals.

(f) What were the amounts of M&S’s depreciation and amortization expense in 2014 and 2015?
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