Question

On July 1, Crowe Co. pays $15,000 to Zubin Insurance Co. for a 3-year insurance policy. Both companies have fiscal years ending December 31. For Crowe Co., journalize the entry on July 1 and adjusting entry on December 31.

b. Using the above data, journalize the entry on July 1, and the adjusting entry on December 31 for Zubin Insurance Co.

Answer 1

Answer:Please see explanation column for answer

Step-by-step explanation:

a)Journal entry for Crowe Co.

Date Account title Debit C redit

July 1st Prepaid Insurance $15,000

Cash $15,000

Dec 31st Insurance expense $2,500

Prepaid Insurance $2,500

Calculation:

Insurance expense = Principal x period

= 15,000 x 6/12(july to december) x 1/3 ( one year from the 3 year insurance )

= $2,500

b)Journal entry for Zubin Insurance Co

Date Account title Debit Credit

July 1st Cash $15,000

Unearned service revenue $15,000

Dec 31st Unearned service revenue $2,500

Service revenue $2,500

Calculation:

Unearned service revenue = Principal x period

= 15,000 x 6/12(july to december) x 1/3 ( one year from the 3 year insurance )

= $2,500