Question

Roland Company began operations on December 1 and needs assistance in preparing December 31 financial statements, including its year-end adjustments. The Tableau dashboard is provided to assist in the work.

Dec-1 prepaid 24 month insurance policy(coverage starting immediately) for $24,000 cash.
Dec-7 purchased supplies for $2,000 cash.
Dec-13 agreed to do $10,000 worth of work for Telo over the next 30.payment is to be received when the work is completed on Jan12.
Dec-24 received $4,000 cash in advance to perform work for ABX over the next four weeks.
Jan-5 paid wages of $800 cash to workers.
Jan-12 received $10,000 cash from Telo for work performed over the last 30 days.
Additional Information as of December 31
Telo Job Completion at Year-End: Telo 60% Complete
ABX Job Completion at Year-End:ABX 25% Complete
Supplies Remaining at Year-End
Wages Earned By Workers but not yet Paid at Year-End
1. Record the prepayment of insurance on December 1 and the adjusting journal entry for prepaid insurance on December 31

Answer 1

December 1:

Prepaid Insurance 24,000

Cash 24,000

December 31:

Insurance Expense x

Prepaid Insurance x

Calculation:

The insurance policy is for 24 months, or 2 years, and was prepaid on December 1. Thus, the amount expiring during the current year (one month) can be calculated as follows:

$24,000 / 24 months = $1,000 per month

$1,000 x 1 month (December) = $1,000

Adjusting entry:

Insurance Expense 1,000

Prepaid Insurance 1,000

The adjusting entry reduces the prepaid insurance account and records the portion of the insurance that has been used (or expired) during the current year as an expense.