Question

On July 1, 2020, Sheffield Co. pays $16,440 to Tamarisk Insurance Co. for a 3-year insurance policy. Both companies have fiscal years ending December 31. Journalize the entry on July 1 and the adjusting entry on December 31 for Tamarisk Insurance Co. Tamarisk uses the accounts Unearned Service Revenue and Service Revenue. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)

Answer 1

Jul 1,2020

Dr Cash 16,440

Cr Unearned Service Revenue 16,440

Dec 31,2020

Dr Unearned Service Revenue 2,740 (16,440*2/12)

Service Revenue 2,740

Step-by-step explanation:

Preparation of journal entries

Based on the information given we were told that the company paid the amount of $16,440 to an insurance company called Tamarisk Insurance Co for a 3-year insurance policy which means that the transaction will be recorded as:

Jul 1,2020

Dr Cash 16,440

Cr Unearned Service Revenue 16,440

(To cash from 3 year insurance sold received from Dobbs co.)

Dec 31,2020

Dr Unearned Service Revenue 2,740 (16,440*2/12)

Service Revenue 2,740

(Service Revenue recognized for 6 months of 2020)