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Chapter 3: Question 3BE (page 128)

BE3-3 (L02,3) On July 1, 2017, Crowe Co. pays $15,000 to Zubin Insurance Co. for a 3-year insurance policy. Both companies have fiscal years ending December 31. For Crowe Co., journalize the entry on July 1 and the adjusting entry on December 31

Short Answer

Expert verified

The value of prepaid insurance expensed till December 31, 2017, is $2,500.

Step by step solution

01

Meaning of Adjusting Entries

Adjusting real accounts needs to be filed at year-end using the adjusting journal entries so that the financial statements will have an effect on transactions relating to the current year. It is required only for accrual accounting.

02

Journal Entries

Date

Accounts and Explanation

Debit $

July 1, 2017

Prepaid Insurance

$15,000

Cash

December 31, 2017

Insurance expenses

$2,500

Prepaid insurance ($15,000 x ½ x 1/3)

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Most popular questions from this chapter

List two types of transactions that would receive differentaccountingtreatments using (a) strict cash basis accounting, and (b) a modified cash basis.

The purpose of presenting comparative information in the

transition to IFRS is:

(a) to ensure that the information is a faithful representation.

(b) to be in accordance with the Sarbanes-Oxley Act.

(c) to provide users of the financial statements with information on GAAP in one period and IFRS in theother period.

(d) to provide users of the financial statements withinformation on IFRS for at least two periods.

Which statement is correct regarding IFRS?

(a) IFRS reverses the rules of debits and credits, that is, debits are on the right and credits are on the left.

(b) IFRS uses the same process for recording transactions as GAAP.

(c) The chart of accounts under IFRS is different because revenues follow assets.

(d) None of the above statements are correct.

Information in a company’s first IFRS statements must:

(a) have a cost that does not exceed the benefits.

(b) be transparent.

(c) provide a suitable starting point.

(d) All the above.

BE3-12 (L07) Kelly Company had cash receipts from customers in 2017 of \(142,000. Cash payments for operating expenses were \)97,000. Kelly has determined that at January 1, accounts receivable was \(13,000, and prepaid expenses were \)17,500. At December 31, accounts receivable was \(18,600, and prepaid expenses were \)23,200. Compute (a) service revenue and (b) operating expenses.
See all solutions

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