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Question & Answer: Following are three separate transactions that pertain to prepaid items. Evaluate each item and prepare the journal entries that…..

Following are three separate transactions that pertain to prepaid items. Evaluate each item and prepare the journal entries that would be needed for the initial recording and subsequent end-of-20X3 adjusting entry. Assume the company uses the balance sheet approach, and the initial recording is to an asset account. The company has a calendar year-end and does not make any adjusting entries prior to December 31.

(1) The company purchased an 18-month insurance policy for $18,000 on June 1, 20X3.
(2) The company started 20X3 with $20,000 in supplies (this was previously recorded, and you do not need to make an entry for the beginning balance), purchased $30,000 in supplies during the year, and found only $13,000 in supplies on hand at the end of 20X3.
(3) The company paid $2,500 to rent a truck. The rental period began on December 16, 20X3, and ends on February 14, 20X4.

GENERAL JOURNAL
Date Accounts Debit Credit
1-Jun
31-Dec
GENERAL JOURNAL
Date Accounts Debit Credit
various
31-Dec
GENERAL JOURNAL
Date Accounts Debit Credit
16-Dec
31-Dec

Expert Answer

 

General Journal
Date particulars Debit Credit
1st June Prepaid Insurance $                     18,000.00
    To Cash $                     18,000.00
(Being Amount of Insurance policy Purchased for 18 months)
31st Dec Insurance=($18000*7/18) $                        7,000.00
      To Prepaid Insurance $                       7,000.00
(Being Amount of prepaid Insurance trf to Insurance A/c)
Various Office Supplies Expenses $                     20,000.00
      To Cash $                     20,000.00
(Being Amount of Office Expenses incurred $20000)
31st Dec Supplies Supplies $                     13,000.00
     To Office Supplies Expenses $                     13,000.00
(Being Amount of Office Supplies at the year end)
16th Dec Prepaid Rent $                        2,500.00
    To Cash $                       2,500.00
(Being amount of Prepaid rent)
31st Dec Rent (2500*.5/2) $                           625.00
      To Prepaid Rent $                           625.00
(Being amount of Prepaid Rent Transferred to Rent A/c)
Note:
Assets Method: Under assets method expense paid in advance will be recorded as an assets.
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