The balance in the Prepaid Insurance account ($4,675) represents the remaining balance of a two-year policy purchased on April 1, 2004. (October 31, 2005 is the date of the Unadjusted Trial Balance).

I have been working on this entry for 2 days now and I can't seem to get my numbers right. I think that this is the entry that is screwing it up. My gut instinct says not to put an adjusting entry in the Prepaid Insurance account because the $4,675 is the REMAINING balance and is correct. I do know that I need to debit the insurance expense account (which as a zero balance at the end of October) but I don't know which account to credit.

This is one answer that I had:
Insurance Expense - DR $17,765
Prepaid Insurance - CR $17,765
** I am sure this is incorrect

This is another one:
Insurance Expense - DR $17,765
Cash - CR $17,765
** I know this is incorrect too

I guess there is also the option that I have my figure incorrect as well.

I could really use some help. My instructor in the course isn't very reliable to respond to my emails and she is not very nice.

Cheers,

Amanda

What is the Insurance Expense for Fiscal year 2005 (Nov. 1, 2004 – Oct. 31, 2005)?

Original Policy = 2 years = 24 months
4,675 left on Oct. 31/05, meaning there are 5 months left in the policy.


How is it 5 months left?
April 1/04 – Oct 31/04 = 7 months
Nov 1/04 – Oct 31/05 = 12 months
Left = 5 months (24-7-12)

Therefore, 4,675 / 5 = 935 per month
935 x 12 = $11,220

Therefore, the insurance expense should be $11,220

If we are to assume they have indeed made the journal entry (credit) to take down prepaid insurance, we are just to assume they forgot the debit entry, so we must:

Dr. Insurance Expense 11,220

So you are saying that I do a single entry and only debit insurance expense? I don't think I can do that. I would have to have a credit that equals the $11,200. I see now that I have to assume that the first fiscal year was journalized correctly. I didn't even think of that. Thank you.

Within the same question that I am working on, there is another issue that I've come across. I am given an unadjusted trial balance with numerous accounts and balances. The adjusting journal entries that I have to create are for many of the different accounts. Some accounts are repeated throughout the adjusting journal entries. For example: Consulting Fees Earned.

In my unadjusted trial balance, the balance in this account is $157,300 (CR). During my adjusting entries, I have credited $580 and debited $3000 (for previous adjusting entries). I then come to an entry that states that accrued wages at October 31 totalled $3,400. Then, there is another adjusting journal entry that is required in a question after this.

Now, at this stage I don't know what the balance of that account is so what kind of journal entry am I supposed to do to have the balance of $157,300 come down to $3,400?? Maybe I am thinking too much on this question, but it just doesn't make sense to me.

I figured that I would debit accounts receivable and credit consulting fees earned, but that won't get me the correct balance. I wonder if I am supposed to create another account? Something called accrued consulting fees. But that is the same as Consulting Fees Earned! Aarrgghhh! I feel like throwing my book out!

Thank you CF, you are an amazing help and I am so glad that I found this site. You are so much nicer than my instructor! Ha ha

So you are saying that I do a single entry and only debit insurance expense? I don't think I can do that. I would have to have a credit that equals the $11,200. I see now that I have to assume that the first fiscal year was journalized correctly. I didn't even think of that. Thank you.

In the real world, no one would ever just Cr. Prepaid for 11,200 and leave it at that, but homework questions aren't like that.

Most likely we are to assume that they did Cr. Prepaid 11,200 and that was it (meaning they forgot the debit entry). Therefore, all you need is the debit entry to complete the impartial credit entry made earlier.

The point of the question was to figure out Insurance Expense, knowing that you had to take the balance and divide by 5 to get the per month rate and then multiply it by 12.




Within the same question that I am working on, there is another issue that I've come across. I am given an unadjusted trial balance with numerous accounts and balances. The adjusting journal entries that I have to create are for many of the different accounts. Some accounts are repeated throughout the adjusting journal entries. For example: Consulting Fees Earned.

In my unadjusted trial balance, the balance in this account is $157,300 (CR). During my adjusting entries, I have credited $580 and debited $3000 (for previous adjusting entries). I then come to an entry that states that accrued wages at October 31 totalled $3,400. Then, there is another adjusting journal entry that is required in a question after this.

Now, at this stage I don't know what the balance of that account is so what kind of journal entry am I supposed to do to have the balance of $157,300 come down to $3,400??? Maybe I am thinking too much on this question, but it just doesn't make sense to me.

I figured that I would debit accounts receivable and credit consulting fees earned, but that won't get me the correct balance. I wonder if I am supposed to create another account? Something called accrued consulting fees. But that is the same as Consulting Fees Earned! aarrgghhh! I feel like throwing my book out!


I have read this twice and I am confused as to what you are saying.

Here is what I THINK you are saying:

The balance of your unadjusted trial balance is Dr/Cr of 157,300
Then you made some changes and your adjusted trial balance should have a Dr/Cr balance of 3,400?

That is very unlikely, do you have the numbers right? Seems like a mistake to me, but it is possible

What I think you might mean is the 3,400 is the accrued wages at Oct 31 is 3,400.

Meaning you need a JE for that,
Dr. Salaries Expense 3,400
Cr. Salaries Payable 3,400

Thanks CF! I went through my question again and I think I had just drove myself nuts with looking at it that I missed some important information. Yikes! Time for some sleep!

Thanks again for the assurance to just do the one entry.

You're a doll!

You're welcome!

So, I've entered these figures and I thought that it would add up, but of course, it doesn't.

Below is the Unadjusted Trial Balance figures and the questions and my answers that I have so far. I am supposed to put these transactions into T-accounts and then get a total DR balance of $243,280. I am approximately $10,000 out.

I don't understand what I am doing wrong. I am so frustrated right now I could spit! :mad:

Cash DR 14,000
Accounts Receivable DR 28,000
Interest Receivable DR 0
Notes Receivable DR 15,000
Supplies DR 2,300
Prepaid Insurance DR 4,675
Prepaid Rent DR 10,500
Office Furniture DR 30,720
Accum. Amort, Furn. CR 10,240
Accounts Payable CR 17,500
Wages Payable CR 0
Unearned Consulting Fees CR 6,580
Capital CR 30,000
Withdrawals DR 8,225
Consulting Fees Earned CR 157,300
Interest Revenue CR 700
Amort. Expense, Furn. DR 0
Wages Expense DR 73,500
Insurance Expense DR 0
Rent Expense DR 32,000
Supplies Expense 3,400



It was determined that $6,000 of the unearned consulting fees had not yet been earned
Unearned Consulting Fees 580DR
Consulting Fees Earned 580CR

It was discovered that $3000 of the balance in the Consulting Fees Earned account was for services to be performed in November.
Consulting Fees Earned 3,000DR
Unearned Consulting Fees 3,000CR

The balance in the Prepaid Rent account represents three months of rent beginning September 1, 2005.
Rent Expense 7,000DR
Prepaid Rent 7,000CR

Accrued wages at October 31 totalled $3,400.
Wages Expense 3,400DR
Wages Payable 3,400CR

The office furniture was purchased on March 1, 2004, and has an estimated useful life of two years. After two years of use, it is expected that the furniture will be worthless.
Amortization Expense, Furniture 15,360DR
Accum. Amortization, Furniture 15,360CR

Accrued consulting fees at year-end totalled $2,100.
Cash 25,900DR
Accounts Receivable 25,900CR

Interest of $100 had accrued on the note receivable for the month of October.
Interest Receivable 100DR
Interest Revenue 100CR

The balance in the Prepaid Insurance account represents the remaining balance of a two-year policy purchased on April 1, 2004.
Insurance Expense 11,220DR
? 11,220CR

A count of the supplies on October 31 revealed a balance remaining of $450.
Supplies Expense 1,850DR
Supplies 1,850CR

I agree with all of your adjusting Journal Entries except the following:


Accrued consulting fees at year-end totalled $2,100.
Cash 25,900DR
Accounts Receivable 25,900CR

Dr. AR 2,100
Cr. Revenue 2,100

Where did the 25,900 even come from?



The balance in the Prepaid Insurance account represents the remaining balance of a two-year policy purchased on April 1, 2004.
Insurance Expense 11,220DR
? 11,220CR
Prepaid Insurance DR 4,675

Of the 24 month policy, 7 months have been used up (April 1/04 – Oct 31/04).

We need to record 12 months.

4,675 / 17 x 12 = 3,300

Dr. Insurance Expense 3,300
Cr. Prepaid Insurance 3,300



These JE give you a Dr/Cr balance on your adjusted trial balance of 243,280.

What is the Insurance Expense for Fiscal year 2005 (Nov. 1, 2004 – Oct. 31, 2005)?

Original Policy = 2 years = 24 months
4,675 left on Oct. 31/05, meaning there are 5 months left in the policy.


How is it 5 months left?
April 1/04 – Oct 31/04 = 7 months
Nov 1/04 – Oct 31/05 = 12 months
Left = 5 months (24-7-12)

Therefore, 4,675 / 5 = 935 per month
935 x 12 = $11,220

Therefore, the insurance expense should be $11,220

If we are to assume they have indeed made the journal entry (credit) to take down prepaid insurance, we are just to assume they forgot the debit entry, so we must:

Dr. Insurance Expense 11,220

So the insurance expense should still be $3,300 as per your answer above rather than the $11,220 that you mention here? I see where you get your answer, I just want to confirm.

Thanks again CF

I See I have calculated 2 different values for insurance expense, based on 2 different assumptions.

The first time I calculated Insurance Expense, I assumed the 4,675 was the balance remaining.


I have been working on this entry for 2 days now and I can't seem to get my numbers right. I think that this is the entry that is screwing it up. My gut instinct says not to put an adjusting entry in the Prepaid Insurance account because the $4,675 is the REMAINING balance and is correct. I do know that I need to debit the insurance expense account (which as a zero balance at the end of October) but I don't know which account to credit.


The second time I based it on a different wording of the question.

What is right? Who knows anymore. But if I would have to guess, I will go with the wording the second time, and say that the 4,675 is the value at the beginning which makes the Insurance Expense 3,300

I would go with the assumption here that they didn't just credit Prepaid Insurance without doing anything else.

But one thing I have learned from homework questions over the years is that something they are intentionally worded cryptic and/or confusing in what they do.

I would go with 3,300. If your totals don't balance, perhaps then that was the wrong choice.

Hey CF, it turns out that it may be the wrong answer because my net income is about $15000 above what it should be. I don't have my text in front of me right now, but I do know that the net income should be about $17,000. I will have to go further to talk to my instructor I see.

Thanks for all your help CF