Answer:
Journal entry on February 1:
Debit Prepaid Insurance $729,600
Credit Cash $729,600
Annual adjusting entry on June 30:
Debit Insurance Expense $152,000
Credits Prepaid Insurance $152,000
Explanation:
On February 1, Procter & Gamble (P&G) paid $729,600 in advance for 2 years’ insurance coverage. The company records the insurance as the prepaid Insurance:
Debit Prepaid Insurance $729,600
Credit Cash $729,600
On Jun 30, the last day of the following 5 months, the company records an adjusting entry that Credits Prepaid Insurance for $152,000 ($729,600 divided by 24 months times the 5 months that will be prepaid as of Jun 30) and Debits Insurance Expense for $152,000
Debit Insurance Expense $152,000
Credits Prepaid Insurance $152,000
