Question

How do I record this adjusted entry.

Two insurance policies provide the insurance coverage for the law firm. Policy one was purchased on July 1, last year for $2,064 and provides 24 months of liability coverage. Policy two was purchased on January 2, this year for $1,260 and is also a 24 month policy covering the business equipment.

Answer 1

Date	Account title and explanation	Debit	Credit
Dec. 31	Insurance Expense[1032+630]	$                1,662
	Prepaid Insurance		$                      1,662
	[To record insurance expenses]

Working:

1) Calculation of current year insurance expense

	First Insurance	Second Insurance
Total Amount Paid[a]	$                2,064	$                      1,260
Coverage (Months) [b]	24	24
Expense per month[a/b]	$                      86	$                            52.50
No. of Months Insurance covered in current year	12	12
Insurance Expense Current Year	$                1,032	$                         630

Notes:

1) It is assumed that December 31st is the year end.