9781259726705 Qs 35 Prepaid deferred expenses adjustments P1

Qs 3-5 Prepaid (deferred) expenses adjustments P1 For each separate case below, follow the three-step process for adjusting the prepaid asset account at December 31. Step 1: Determine what the current account balance equals. Step 2: Determine what the current account balance should equal. Step 3: Record the December 31 adjusting entry to get from step 1 to step 2. Assume no other adjusting entries are made during the year e. The Prepaid Insurance account has a $4,700 debit balance to start the year A review of insurance policies and payments shows that $900 of unexpired insurance remains at year-end. b. Prepaid Insurance. The Prepaid Insurance account has a $5,890 debit balance at the start of the year. A review of insurance policies and payments shows $1,040 of insurance has expired by year-end. c. Prepaid Rent. On September 1 of the current year, the company prepaid $24,000 for two years of rent for facilities being occupied that day. The company debited Prepaid Rent and credited Cash for $24,000

Solution

1-

beginning balance

4700

closing balance in prepaid insurance

900

amount of insurance expired or insurance expense during the year

4700-900

3800

date

explanation

debit

credit

31-Dec

insurance expense

3800

prepaid insurance

3800

2-

beginning balance

5890

amount of insurance expired or insurance expense during the year

1040

closing balance in prepaid insurance

4850

date

explanation

debit

credit

31-Dec

insurance expense

1040

prepaid insurance

1040

3-

balance in prepaid rent

24000

less rent expense

(24000*4/24)

4000

closing balance in prepaid rent

24000-4000

20000

date

explanation

debit

credit

31-Dec

rent expense

4000

prepaid rent

4000

1-	beginning balance		4700
	closing balance in prepaid insurance		900
	amount of insurance expired or insurance expense during the year	4700-900	3800
	date	explanation	debit	credit
	31-Dec	insurance expense	3800
		prepaid insurance		3800
2-	beginning balance		5890
	amount of insurance expired or insurance expense during the year		1040
	closing balance in prepaid insurance		4850
	date	explanation	debit	credit
	31-Dec	insurance expense	1040
		prepaid insurance		1040
3-	balance in prepaid rent		24000
	less rent expense	(24000*4/24)	4000
	closing balance in prepaid rent	24000-4000	20000
	date	explanation	debit	credit
	31-Dec	rent expense	4000
		prepaid rent		4000