QS 3-5 Prepaid (deferred) expenses adjustments LO P For each separate case below

Question

QS 3-5 Prepaid (deferred) expenses adjustments LO P For each separate case below, follow the three-step process for adjusting the prepaid asset account at December 31. Step 1: Determine what the current account balance equals. Step 2 Determine what the current account balance should equal Step 3. Record the December 31 adjusting entry to get from step 1 to step 2 Assume no other adjusting entries are made during the year a. Prepaid Insurance. The Prepaid Insurance account has a $5,200 debit balance to start the year. A review of insurance policies and payments shows that $1,150 of unexpired insurance remains at year-end Prepaid Insurance Step 1: Determine what the current account balance equals Step 2: Determine what the current account balance should equal Step 3: Reoord the December 31, adjusting entry to get from step 1 to step 2 Insurance Expense Prepaid Insurance b. Prepaid Insurance. The Propaid Insurance account has a $6,390 debit balance at the start of the year. A review of insurance policies and payments shows $1.240 of insurance has expired by year-end Prepaid Insurance Step 1: Determine what the current account balance equals. Step 2 Determine what the current account balance should equal. Step 3: Record the December 31, adjusting entry to get from step 1 to step 2 c. Prepaid Rent. On September 1 of the current year, the company prepaid $30,000 for two years of rent for facilities being occupled that day. The company debited Prepaid Rent and credited Cash for $30,000. Prepaid Rent Step 1: Determine what the current account balance equals Step 2: Determine what the current account balance should equal. Step 3. Record the December 31, adjusting entry to get from step 1 to step 2 Hints

Explanation / Answer

Prepaid (deferred) expenses adjustments:

Solution

Step1: The current account balance equals to $5,200 paid in previous year.

Step 2: Records indicate unexpired insurance remaining at year-end as $1,150. The amount of expired insurance during the current period is $5,200 - $1,150 = $4,050. Hence, the insurance expense for the current year is $4,050 and the balance sheet should report the unexpired portion of prepaid insurance as $1,150 as on December 31.

Prepaid Insurance

Jan 1

$5,400

Adjustment, 4,050

31-Dec

$1,150

Step 3: The adjusting entry to get from Step 1 to Step 2 reduces the balance in the balance sheet account, Prepaid Insurance. The entry credits the prepaid insurance account and debits the income statement account, Insurance Expense with $4,050.

31-Dec

Insurance Expense

$4,050

Prepaid Insurance

$4,050

(To recognize expired insurance expense during the period)

Step1: The current account balance equals to $6,390 paid in previous year.

Step 2: Records indicate expired insurance at year-end as $1,240. The amount of unexpired insurance during the current period is $6,390 - $1,240 = $5,150. Hence, the insurance expense for the current year is $1,240 and the balance sheet should report the unexpired portion of prepaid insurance as $5,150 as on December 31.

Prepaid Insurance

Jan 1

$06,390

Adjustment, 1,240

31-Dec

$5,150

Step 3: The adjusting entry to get from Step 1 to Step 2 reduces the balance in the balance sheet account, Prepaid Insurance. The entry credits the prepaid insurance account and debits the income statement account, Insurance Expense with $1,240.

31-Dec

Insurance Expense

$1,240

Prepaid Insurance

$1,240

(To recognize expired insurance expense during the period)

Step1: The current account balance equals to $30,000 paid on September 1 for two years of rent.

Step 2: Records indicate expired rent at year-end for four months (Sept 1 – Dec 31) as $5,000 (30,000 x 4/24). The amount of unexpired rent during the current period is $30,000 - $5,000 = $25,000. Hence, the rent expense for the current year is $5,000 and the balance sheet should report the unexpired portion of prepaid rent as $25,000 as on December 31.

Prepaid Rent

Sept 1

$30,000

Adjustment, $5,000

31-Dec

$25,000

Step 3: The adjusting entry to get from Step 1 to Step 2 reduces the balance in the balance sheet account, Prepaid Rent. The entry credits the prepaid rent account and debits the income statement account, Rent Expense with $5,000.

31-Dec

Rent Expense

$5,000

Prepaid Insurance

$5,000

(To recognize expired rent expense during the period)

Prepaid Insurance

Jan 1

$5,400

Adjustment, 4,050

31-Dec

$1,150

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.