Question

J.1) Which of the following is not an example of a use of special purpose funds?

A) Petty cash.

B) Payroll.

C) Bond repayment.

D) Accounts receivable.

J.2) Several years ago, Cayuga Capital acquired a $1 million insurance policy on the life of its chief executive officer, naming Cayuga Capital as beneficiary. Annual premiums are $20,000, payable at the beginning of each year. In 2021, the cash surrender value of the policy increased from $12,000 to $15,000 according to the contract. Cayuga's journal entry to record payment of the insurance premium in 2021 would include a:

A) debit to cash of $20,000.

B) debit to cash surrender value of life insurance of $15,000.

C) debit to insurance expense of $17,000.

D) credit to surrender value revenue of $3,000.

Answer 1

J1.

d.accounts receivable.

Accounts receivable is not a special purpose fund.

Payroll, petty cash, bond repayments are special purpose funds.

J2.

C.debit to insurance expense of $17,000.

(the following will be journal entry):

date	accounts	debit	credit
dec 31 2021	Cash surrender value (15,000-12,000)	3,000
	insurance expense (20,000-3,000)	17,000
	.............To cash a/c		20,000