Question

On July 1, 2022, Sheridan Company pays $18,500 to Wildhorse Co. for a 2-year insurance contract. Both companies have fiscal years ending December 31. Collapse question part (a1) For Sheridan Company, journalize the entry on July 1 and the annual adjusting entry on December 31. (Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit choose a transaction date enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount choose a transaction date enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer:

July 1, 2022, two year insurance policy paid in advance:

Dr Prepaid insurance 18,500

    Cr Cash 18,500

December 31, 2022, accrued insurance expense:

Dr Insurance expense 4,625

    Cr Prepaid insurance 4,625

By December 31, 2022, 6 months had passed since the policy was purchased, so you must accrue 6 months worth of insurance expense = ($18,500 / 24 years) x 6 months = $4,625