PART A
Answer:
Insurance expense debit for 3,800
Insurance prepaid credit for 3,800
Explanation:
a.- Prepaid Insurance. The Prepaid Insurance account has a $4,700 debit balance to start the year. A re- view of insurance policies and payments shows that $900 of unexpired insurance remains at year-end.
Step 1: Currently equals to $4,700
Step 2: It should equal $900
In this Case: It is giving us the begining balance, and then it proceeds to tell us the ammount unexpired, which means the ending balance. So the <em>diference will be the adjuting entry</em>
Step 3: $4700 - $900 = $3,800
insurance expense debit for 3,800
insurance prepaid credit for 3,800
PART B
Answer:
insurance expense 1040 debit
prepaid insurance 1040credit
Explanation:
b.- Prepaid Insurance. The Prepaid Insurance account has a $5,890 debit balance at the start of the year. A review of insurance policies and payments shows $1,040 of insurance has expired by year-end.
Step 1: Curently equals to $5,890
Step 2: 5,890 - 1,040 expired portion = 4,850 unexpired portion
The blaance should be 4,850
In this Case: It is giving us the begining balance, and then it proceeds to tell us the ammount expired, which means the adjusting entry. So the <em>diference will be the ending balance</em>
Step 3
The adjusting entry must be made for 1,040 which is the expired portion
insurance expense 1040 debit
prepaid insurance 1040credit
PART C
Answer:
rent expense 4,000 debit
prepaid rent 4,000 credit
Explanation:
C.- PrepaidRent. On September 1 of the current year, the company prepaid $24,000 for 2 years of rent for facilities being occupied that day. The company debited Prepaid Rent and credited Cash for $24,000.
Step 1 Current balance is 24,000
In this Case: It is giving us the begining balance, and then it proceeds to tell us <em>information about the contract,</em> which means <em>we are going to work to get the expired portion</em> and with that calculate the ending balance like on part B
Step 2 We are at December 31th the expired portion will be 4 months (September, October, November and December) so:
24,000
----------------------------- x 4 months expired = 4,000 expired portion
24 month of contract
24,000 - 4,000 = 20,000
<em>begining - expired = ending AKA "unexpired"</em>
<em>The balance should be equal to 20,000</em>
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Step 3: the adjusting entry should be done for 4,000 which is the expired portion of the rent.
rent expense 4,000 debit
prepaid rent 4,000 credit
