Question

On July 1, 2019, Sunland Company pays $18,300 to Kalter Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending December 31. For Sunland Company, journalize and post the entry on July 1 and the annual adjusting entry on December 31. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Answer 1

Answer:

Kalter Insurance Co

July 1, 2019  

Dr.    Cash:                                       $18,300

Cr.    Unearned Service Revenue  $18,300

Dec 31

Dr.    Unearned Service Revenue:  $3,050

Cr.    Service Revenue:                    $3,050

Sunland Co

July 1

Dr.    Pre-paid Insurance                  $18,300

Cr.    Cash:                                        $18,300

Dec 31

Dr.    Insurance Expense:                $3,050

Cr.    Pre-paid Insurance:                $3,050

Explanation:

Cash Paid for insurance of 3 years on July 1, 2019 is prepaid Insurance for Sunland Co and unearned revenue for Kalter Insurance Co. The Insurance expenses is accrued and Revenue is recognised for 6 months only on Deccember 31, 2019.

Prepaid Insurance / Unearned Revenue = $18,300

Insurance Expense / Service Revenue = $18,300 x 6 / ( 3 x 12 ) = $3,050