Question

LaBelle Corporation owns a $6 million whole life insurance policy on the life of its CEO, naming LaBelle as beneficiary. The annual premiums are $95,000 and are payable at the beginning of each year. The cash surrender value of the policy was $56,000 at the beginning of 2021. Required: 1. Prepare the appropriate 2021 journal entry to record insurance expense and the increase in the investment, assuming the cash surrender value of the policy increased according to the contract to $70,000. 2. The CEO died at the end of 2021. Prepare the appropriate journal entry.

Answer 1

1. Dr Cash surrender 14,000

Dr Insurance exp 81,000

Cr Cash 95,000

2. Dr Cash 6,000,000

Cr Cash surrender 70,000

Cr Gain on life 5,930,000

Step-by-step explanation:

1. Preparation of the appropriate 2021 journal entry to record insurance expense and the increase in the investment

Dr Cash surrender 14,000

(70,000-56,000)

Dr Insurance exp 81,000

(95,000-14,000)

Cr Cash 95,000

2. Preparation of the appropriate journal entry if The CEO died at the end of 2021.

Dr Cash 6,000,000

Cr Cash surrender 70,000

Cr Gain on life 5,930,000

(6,000,000-70,000)