Assume that on February 1, Procter & Gamble (P&G) paid $674,400 in advance for 2 years' insurance coverage. Prepare P&G's February 1 journal entry and the annual adjusting entry on June 30. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)

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Aydan

Business

13 September, 21:50

Assume that on February 1, Procter & Gamble (P&G) paid $674,400 in advance for 2 years' insurance coverage. Prepare P&G's February 1 journal entry and the annual adjusting entry on June 30. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)

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Nylah Wong · Answer 1

February 1

Dr. Prepaid Insurance $674,400

Cr. Cash $674,400

June 30

Dr. Insurance Expense $140,500

Cr. Prepaid Insurance $140,500

Explanation:

Prepaid Expenses are those expense which have not been accrued yet but the payment against the future expense is made in advance.

On February 1 all the insurance is paid in advance so, it will be recorded in the prepaid insurance account.

On June 30 only 5 months are accrued in respect of Prepaid Insurance, So, the Insurance Expense of 5 months should be recorded and transferred from the prepaid insurance account.

Accrued Insurance Expense = $674,400 x 5/24 = $140,500