Embree Corp. purchased a four-year insurance policy on May 1, Year 2, for $12,000, effective immediately. The company expensed t
he full cost of the policy in Year 2. The correct journal entry for Year 2 (ending December 31) will include a_____________.
1 answer:
Answer:
a. Debit to Prepaid Insurance of $10,000
* Option for this question was missing so I have attached a similar question with this answer and answered accordingly.
Explanation:
Insurance purchased for four years was actually prepaid insurance on May 1, Year 2.
The company expensed all amount by positing following entry ( which is a wrong entry)
DR. Insurance Expense $12,000
Cr. Cash $12,000
It should be entered as follow:
DR. Prepaid Insurance $12,000
Cr. Cash $12,000
At the end of the year 2 8 months has been passed for which $2,000 is accrued and it will be recorded, as all the amount is charged to the expense account we will adjusted the remaining amount of $10,000 to correct this mistake.
Now at the end of year 2 the correct entry which will settle the expense and prepaid insurance as well is as follow.
DR. Prepaid Insurance $10,000
Cr. Insurance Expense $10,000
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Answer:
d. 2750 units
Explanation:
The break-even point occurs when the make option cost equals the buy option cost. The number of units 'x' needed in order for both options to yield the same costs is given by:
The break-even point is 2,750 units