A company has a fiscal year-end of December 31: (1) on October 1, $29,000 was paid for a one-year fire insurance policy; (2) on June 30 the company advanced its chief financial officer $27,000; principal and interest at 5% on the note are due in one year; and (3) equipment costing $77,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $15,400 per year. Prepare the necessary adjusting entries at December 31 for each of the above items. (I

Question

Darnell Crane

Business

5 May, 11:14

A company has a fiscal year-end of December 31: (1) on October 1, $29,000 was paid for a one-year fire insurance policy; (2) on June 30 the company advanced its chief financial officer $27,000; principal and interest at 5% on the note are due in one year; and (3) equipment costing $77,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $15,400 per year. Prepare the necessary adjusting entries at December 31 for each of the above items. (I

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Bruce Donovan · Answer 1

The adjusting entries are shown below:

1. Insurance Expenses A/c Dr $7,250

To Prepaid Insurance A/c $7,250

(Being the prepaid insurance is recorded)

The computation is given below

= $29,000 * 3 months : 12 months

= $7,250

2. Accrued interest A/c Dr $675

To Interest revenue $675

(Being the accrued interest is recorded)

The computation is given below

= 27,000 * 6 months : 12 months * 5%

= $675

3. Depreciation expense - equipment A/c Dr $15,400

To Accumulated depreciation A/c $15,400

(Being the depreciation expense is recorded)