Question

Question: Ricardo Construction began operations on December 1. In setting up its accounting procedures, the

company decided to debit expense accounts when it prepays its expenses and to credit revenue accounts

when customers pay for services in advance. Prepare journal entries for itemsathroughdand the adjusting

entries as of its December 31 period-end for itemsethroughg. (Entries can draw from the following

partial chart of accounts: Cash; Accounts Receivable; Interest Receivable; Supplies; Prepaid

Insurance; Unearned Remodeling Fees; Remodeling Fees Earned; Supplies Expense; Insurance

Expense; Interest Expense.)

a. Supplies are purchased on December 1 for \(2,000 cash.

b. The company prepaid its insurance premiums for \)1,540 cash on December 2.

c. On December 15, the company receives an advance payment of \(13,000 cash from a customer for remodeling

work.

d. On December 28, the company receives \)3,700 cash from another customer for remodeling work to be

performed in January.

e. A physical count on December 31 indicates that the company has \(1,840 of supplies available.

f. An analysis of the insurance policies in effect on December 31 shows that \)340 of insurance coverage

had expired.

g. As of December 31, only one remodeling project has been worked on and completed. The $5,570 fee

for this project had been received in advance and recorded as remodeling fees earned.

Short answer

The prepaid insurance account is debited and insurance expense credited with $1,200.

Step-by-step solution

Definition of prepaid insurance

The amount of the insurance paid in advance is known as prepaid insurance.

Entry for the prepaid insurance

	Journal entry
Date	Particular	Debit	Credit
December 31	Prepaid Insurance	$1,200
	Insurance Expense		$1,200
	(Adjustment entry for ex[ired insurance)