Question

On July 1, 2019, Sheffield Corp. pays $20,700 to Kalter Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending December 31. For Sheffield Corp., 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

Step-by-step explanation:

The journal entries are as follows:

On July 1

Prepaid Insurance A/c Dr $20,700

To Cash A/c $20,700

(Being prepaid insurance is paid)

On December 31

Insurance expense A/c Dr $

To Prepaid insurance A/c $1,110

(Being the insurance expense is recorded)

The insurance expense is shown below:

= $20,700 ÷ 3 years × 6 months ÷ 12 months

= $3,450