Question 2 On July 1, 2010, Spahn Co. pays $18,000 to Randle Insurance Co. for a

Question

Question 2 On July 1, 2010, Spahn Co. pays $18,000 to Randle Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending December 31. Prepare the journal entry on July 1 and the adjusting entry on December 31 for Randle Insurance Co. 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 transaction, enter NA as the date and 0 for the amount. Do not leave any fields blank.) Unearned Insurance Revenue 12/31 Bal. 12/31 Bal. Insurance Revenue

Explanation / Answer

July 1 Dr Cash $18000 Cr Insurance Revenue $18000 Only half year of insurance revenue is earned, the rest are prepaid. Thus, adjustment have to be made on December 31. December 31 Dr Insurance Revenue $15000 Cr Unearned Insurance Revenue $15000

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