Answer:
Journalize and post the entry on July 1:
Debit Prepaid Insurance $21,900
Credit Cash $21,900
The annual adjusting entry on December 31:
On December 31, 2020:
Debit Insurance Expense $3,650
Credits Prepaid Insurance $3,650
On December 31, 2021:
Debit Insurance Expense $7,300
Credits Prepaid Insurance $7,300
On December 31, 2022:
Debit Insurance Expense $7,300
Credits Prepaid Insurance $7,300
On December 31, 2023:
Debit Insurance Expense $3,650
Credits Prepaid Insurance $3,650
Step-by-step explanation:
On July 1, 2020, Cheyenne Corp. pays $21,900 in advance for 3 year insurance contract. The company records the insurance as the prepaid Insurance:
Debit Prepaid Insurance $21,900
Credit Cash $21,900
Insurance expense per year = $21,900/3 = $7,300
On December 31, 2020 the last day of the following 6 months, the company records an adjusting entry:
Debit Insurance Expense $3,650 (=$7,300/12x6 = $3,650)
Credits Prepaid Insurance $3,650
On December 31, 2021:
Debit Insurance Expense $7,300
Credits Prepaid Insurance $7,300
On December 31, 2022:
Debit Insurance Expense $7,300
Credits Prepaid Insurance $7,300
On December 31, 2023:
Debit Insurance Expense $3,650
Credits Prepaid Insurance $3,650