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BE3-5 On July 1, 2012, Spahn Co. pays $18,000 to Randle Insurance Co. for a 3-ye

ID: 2345287 • Letter: B

Question

BE3-5

On July 1, 2012, Spahn Co. pays $18,000 to Randle Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending, December 31. For Spahn Co., journalize the entry on July 1 and the adjusting entry on December 31.

Date Account/Description Debit Credit
July 1

Dec. 31


Using T accounts, enter the balances in the accounts below, post the adjusting entry as necessary, and indicate the adjusted balance in each account. (If there is no entry, enter NA for the date and 0 for the amount.)

Prepaid Insurance

12/31 Bal. 12/31 Bal.



Insurance Expense

Explanation / Answer

July 1

Debit: Prepaid insurance 18,000

Credit Cash 18,000

To record the purchase of a 3-year insurance policy


Dec. 31
Debit: Insurance expense 3,000

Credit: Prepaid insurance 3,000

To record the expiration of 6 months of insurance

Insurance Expense

Prepaid insurance

18000

3000

bal. 12/31

15000

Prepaid insurance

18000

3000

bal. 12/31

15000