Question

Brief Exercise 3-5 On July 1, 2017, Major Co. pays $27,600 to Cruz Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending December 31. For Major Co., journalize and post the entry on July 1 and the annual adjusting entry on December 31. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Answer 1

Answer: Please see below

Step-by-step explanation:

Journal to record the Adjusting entry for Major Co payment to Cruz Insurance

Date Account Debit Credit

July 1 Prepaid insurance $27, 600

Cash $27,600

Date Account Debit Credit

Dec 31 Insurance expense $4,600

Prepaid insurance $4,600

Working : July - december= 6months, insurance contract= 3 years(3x12months =36months )

Insurance expense = $27,600 x

(6/36)= $4,600