Question

Edible Chemicals Corporation owns a $2 million whole life insurance policy on the life of its CEO, naming Edible Chemicals as beneficiary. The annual premiums are $72,000 and are payable at the beginning of each year. The cash surrender value of the policy was $22,000 at the beginning of 2018.

1. & 2. Prepare the appropriate 2018 journal entries to record insurance expense and the increase in the investment assuming the cash surrender value of the policy increased according to the contract to $28,200. The CEO died at the end of 2018.

Answer 1

the following are the required journal entries:

sno	general journal	debit	credit
1.	Insurance expense a/c	65,800
	cash surrender value of life insurance a/c	6,200
	............cash a/c		72,000
	(cash surrender value of life insurance = 28,200 ending value- 22,000 beginning value)
2	cash a/c	2,000,000
	..............To cash surrender value		28,200
	..............To gain on life insurance settlement		1,971,800
	(gain = 2,000,000 - 28,200 settlement value=>1,971,800)