On July 1, 2020, Marigold Corp. pays $13,200 to Kalter Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending December 31. For Marigold Corp., journalize and post the entry on July 1 and the annual adjusting entry on December 31.

For Dobbs Co., journalize and post the entry on July 1 and the adjusting entry on December 31.

For Marigold

The journal entries on July 1, 2020 are:

Dr Insurance prepayment $13,200

Cr Cash $13,200

being insurance paid for in advance

The adjusting entry at the close of the year

Dr Insurance expense $2,200

Cr Insurance prepayment $2,200

Being insurance expense incurred in the year

The other party is Kalter insurance not Dobbs Co:

he journal entries on July 1, 2020 are:

Dr Cash $13,200

Cr Prepaid revenue $13,200

being revenue received in advance

The adjusting entry at the close of the year

Dr Prepaid revenue $2,200

Cr Revenue $2,200

Being recognition earned in the year

Explanation:

Upon the payment of the insurance, the cash account of the paying company is credited and that of the receiving company debited.

The other entry in the paying company is insurance prepayment while that of the receiving company is prepaid revenue.