account was debited for $15,000 for premiums on policies purchased during the year.
Journalize the adjusting entry required at the end of the year for each of the following
situations: (a) the amount of unexpired insurance applicable to future periods is $5,000;
(b) the amount of insurance expired during the year is $14,800.
Answer:
a. Insurance Expense........................................................ 14,800
Prepaid Insurance .................................................... 14,800
Insurance expired ($4,800 + $15,000 – $5,000).
b. Insurance Expense........................................................ 14,800
Prepaid Insurance .................................................... 14,800
Insurance expired.
Can you explain how you arrived at these answers?
ReplyDeleteOkay, umm, so the beginning balance for the prepaid insurance account is $4,800 and we bought additional insurance worth $15,000. This means, we had $19,800 ($4,800 + $15,000) during the course of the year.
DeleteFor situation (a)
It says that we have $5,000 worth of prepaid insurance left. We need to compute for the expired insurance. We should subtract $19,800 with $5,000 to get $14,800.
Since the current debit balance of the prepaid insurance account is $19,800, to make it $5,000, we need to credit $14,800 from the prepaid insurance account to get the ending debit balance of $5,000.
In situation (b)
On the other hand, in situation b, we don't need to calculate how much is expired since $14,800 is already given.
I'm not really good at explaining things but reply if you still don't get it. :)