Question

Consider the following transactions for Huskies Insurance Company: a. Equipment costing $32,400 is purchased at the beginning of the year for cash. Depreciation on the equipment is $5,400 per year. b. On June 30, the company lends its chief financial officer $34,000; principal and interest at 7% are due in one year. c. On October 1, the company receives $9,600 from a customer for a one-year property insurance policy. Deferred Revenue is credited.

Answer 1

Answer with its Explanation:

Requirement A. Record the purchase at the start of the year and depreciation at the end of the year.

On the start of the year, the purchase of the equipment would be recorded as under:

Dr Equipment Account $32,400

Cr Cash Account                   $32,400

At 31 December, the depreciation would be realized and would be recorded as under:

Dr Depreciation Expense  $5,400

Dr Accumulated Depreciation     $5,400

Requirement B. Adjust the interest revenue receivable from the CFO

At 31 December, the Interest receivable for 6 months would be recorded as under:

Dr Interest Receivable ($34000 x 7% x 6/12)    $1,190

Cr Interest Income Account                                    $1,190

Requirement C. Adjust the Deferred revenue for 3 months

At 31 December, the insurance revenue would be realized which would be reduced by 3/12 factor (Debited) and an equal amount would be realized as revenue earned (Credited).

Dr Deferred Revenue ($9600 x 3/12)  $2,400

Cr Service Revenue Earned                       $2,400