Accounting HW help please?
Ok I almost finished it but still got 2 questions which I cant answer and I have no time to read the chapter for the 3rd time. So please accountants out there help.
1)The Prepaid Insurance account shows the following entries on June 30:
Beginning Balance $ 1,530
January 1 $2,900
May 1 $3,366
The beginning balance represents the unexpired portion of a one-year policy purchased the previous year. The January 1 entry represents a new one-year policy, and the May 1 entry represents the additional coverage of a three-year policy.
Insurance Expense?
Prepaid Expense?
2)On June 1, the company completed negotiations with another client and accepted a payment of $ 21,000, representing one year’s services paid in advance. The $ 21,000 was credited to Services Collected in Advance.
Services Collected in Advance?
Service Revenue?
Thanks. 10 Points to the person who does this.
Answer:
if you are working with a dec 31 year end the entire 1530 would be expensed because it is actually for the insurance for the current year. the january 1 would be entirely expensed if your policy is for coverage from jan-dec otherwise the portion of the coverage for the following would be prepaid and the may 1 would be 3366/36 to give you a monthly total of 93.5 per month. the policy would be expensed from may-dec so 7 months or 654.50 and the rest would be prepaid. this all assumes that you are working on a dec year end.
for the second one, you want to put 7 months to your revenue because everything from June - Dec is actually revenue and the portion paid for jan - may of the following year would be prepaid. 21000/12 is 1750 per month so 12250 would go to your revenue and 8750 would go to your service collected in advance.
June 30 - The entire amount will be expensed to that year (1530) The new balance is 0
The purchase of the new 1 yr policy is $2,900 dollars (assuming straight line depreciation, expense will be $241.67 per month) After 4 months a new policy is purchase so the accts should be
Prepaid Insurance (2900- (241.67*4)) = 1933.33
Insurance expense is 1530 + (241.67*4) = 2496.67
The new Policy must cost (3366 - 1933.33) = 1432.67
2.Assuming Dec 31 year end Recognize 6 months of the collection
Services Collected in Advance 10500
Service Revenue 10500
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