Question
In: Accounting
I company makes the payment of a one year insurance premium $4824 on March 1, 2016....
I
company makes the payment of a one year insurance premium $4824 on
March 1, 2016.
use the horizontal model to record the transaction.
write the journal entry
use the Horizontal model to show the amount of insurance
premium "used" that month.
prepare the adjusting entry that will be made at the end of
every month to show the amount of insurance premium used that
month.
calculate the amount of prepaid insurance that should be
reported on the December 31, 2016 balance sheet with respect to
this policy.
prepaid insurance?
if the premium has been $9648 for two year. How should the
prepaid amount and December 31, 2016 be reported on the balance
sheet?
non-current asset?
current asset?
prepaid expenses reflects as an asset for more meaningful net
income amount, true or false?
Solutions
Expert Solution
| BALANCE SHEET | INCOME STATEMENT | |||||||||||||
| Date | Cash | + | Prepaid Insurance | + | Other Assets | = | Owner's Equity | + | Retained Earnings | Income | - | Expenses | = | Profit |
| March 1 | $ -4,824.00 | $ 4,824.00 | $ - | $ - | $ - | $ - | $ - | $ - | ||||||
| March 31 | $ - | $ -402.00 | $ - | $ - | $ -402.00 | $ - | $ 402.00 | $ -402.00 |
Monthly Insurance Expense = $4,824 / 12 months = $402
| Date | General Journal | Debit | Credit |
| March 1 | Prepaid Insurance | $ 4,824.00 | |
| Cash | $ 4,824.00 | ||
| (Being One year Insurance policy purchased) | |||
| Adjusting Entry: | Insurance Expense | $ 402.00 | |
| Prepaid Insurance | $ 402.00 | ||
| (Being monthly insurance expense recorded) |
Prepaid Insurance as on December 31, 2016 = Insurance Permium - (Insurance expense per month * Months expired)
= $4,824 - ($402 * 10 months)
= $4,824 - $4,020
= $804
If the premium has been paid for 2 years, the prepaid insurance shall be
Current Asset (From Jan 1, 2017 to Dec 31, 2017) = $402 per month * 12 months = $4,824
Non Current Asset (From Jan 1, 2018 to Feb 28, 2018) = $402 * 2 months = $804
True, Prepaid expense does reflects as an asset for more meaningful net income amount because they help to folllow the matching concept of acc ounting.
ekkarill92 answered 2 years agoRelated Solutions
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