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16 June, 03:23

Assume that on February 1, Procter & Gamble (P&G) paid $729,600 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.) Date Account and Explanation Debit Credit

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  1. 16 June, 03:32
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    Journal entry on February 1:

    Debit Prepaid Insurance $729,600

    Credit Cash $729,600

    Annual adjusting entry on June 30:

    Debit Insurance Expense $152,000

    Credits Prepaid Insurance $152,000

    Explanation:

    On February 1, Procter & Gamble (P&G) paid $729,600 in advance for 2 years' insurance coverage. The company records the insurance as the prepaid Insurance:

    Debit Prepaid Insurance $729,600

    Credit Cash $729,600

    On Jun 30, the last day of the following 5 months, the company records an adjusting entry that Credits Prepaid Insurance for $152,000 ($729,600 divided by 24 months times the 5 months that will be prepaid as of Jun 30) and Debits Insurance Expense for $152,000

    Debit Insurance Expense $152,000

    Credits Prepaid Insurance $152,000
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