On July 1 2017 Oriole Co pays 13740 to Waterway Insurance Co

On July 1, 2017, Oriole Co. pays $13,740 to Waterway 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 Waterway Insurance Co. Waterway uses the accounts Unearned Service Revenue and Service Revenue.

Solution

Answer :- Journal entries

Prepaid insurance A/c Dr.

To Cash A/c

13740

13740

Insurance expense A/c Dr.

To Prepaid insurance A/c

2290

  2290

(0.50 * 13740 / 3 = $ 2290).

Note :- Six months can also be written as 0.50 i.e., 6 / 12.