Question

On July 1, 2020, Splish Brothers Inc. pays $24,900 to Kalter Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending December 31. For Splish Brothers Inc., 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 and Explanation:

The journal entries are shown below:

On July 1

Prepaid Insurance $24,900  

      To Cash $24,900

(being the prepaid insurance is recorded)

Here prepaid insurance is debited as it increased the assets and cash is credited as it decreased the assets  

On Dec 31

Insurance expense $4,150  ($24,900 ×6 ÷ 36)

        To Prepaid Insurance $4,150

(being insurance expense is recorded)

The insurance expense is debited as it increased the expenses and credited the prepaid insurance as it decreased the assets