A calendar year company paid $24,000 on October 1, 2019 to purchase two years of insurance coverage for its retail shop. The prepayment was initially recorded as an asset.
A)What adjusting journal entry is necessary at December 31, 2019?
B)How much will be reported on the balance sheet at December 31, 2019, for prepaid insurance?
C)How much will be reported on the income statement for the year ended December 31, 2019, for insurance expense?
D)If the adjustment in part A is not recorded, by what amount will net income be over or understated at December 31, 2019?
E)What adjusting journal entry is necessary at December 31, 2020?
F)How much will be reported on the balance sheet at December 31, 2020, for prepaid insurance?
G)How much will be reported on the income statement for the year ended December 31, 2020, for insurance expense?
Correct Answer:
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