Hormel Co. follows the practice of recording prepaid expenses and unearned reven

Question

Hormel Co. follows the practice of recording prepaid expenses and unearned revenues in balance sheet accounts. Hormel's annual accounting period ends on December 31, 2009. The following information concerns the adjusting entries to be recorded as of that date.

b. An analysis of the company's insurance policies provided the following facts:

Policy Date of Purchase Months of Coverage Cost
A April 1, 2008 24 $11,640
B April 1, 2009 36 10,440
C August 1, 2009 12 9,240

The total premium for each policy was paid in full (for all months) at the purchase date, and the Prepaid Insurance account was debited for the full cost. (Year-end adjusting entries for Prepaid Insurance were properly recorded in all prior years.)

1. Use the information to prepare adjusting entries as of December 31, 2009
2. Prepare journal entires to record the first subsequent cash transaction in 2010 for c

Explanation / Answer

Policy Date of Purchase Months of Coverage Cost to be debited to expenses A April 1, 2008 12 $5,820 B April 1, 2009 9 2,610 C August 1, 2009 5 3,850 Total 12,280 Entries 1. Insurance expense $12,280 Prepaid Insurance $12,280 (To record the adjustment of Insurance expense for the year 2009) 2. Prepaid Insurance Cash

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