Question

On January 1,20x1,ABC Co. insured life of one of its key management personnel for 1,000,000. ABC Co. is the benefeciary. The insurance policy requires annual payment of 50,000 at the start of each year. Information on the cash surrender value is shown below.

Policy year                      Cash surrender Value

Dec. 31,20x1                            -
Dec. 31, 20x2                           -
Dec. 31, 20x3                      18,000
Dec. 31, 20x4                       21,000
Dec. 31, 20x5                        32,000

Additional Information:
1.ABC Co. received 4,000 cash dividend from the life insurance on April 1,20x4
2. The key employee died on March 31, 20x5

Requirements: Provide the Journal Entries on the following dates ( Use the asset method of recording in cash disbursement)

a. January 31,20x1 and Dec. 31, 20x1 (adjusting entry)
b. December 31, 20x3 ( cash surrender value)
c. April 1,20x4 ( dividends)
d. December 31, 20x4 ( cash surrender value)
e. January 1, 20x5   ( payment of insurance premium)
f. March 31, 20x5 ( assume the policy is also collected on this date)

Answer 1

PL - Profit & Loss account

BS - Balance Sheet account