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  • Jan 23, 2007, 04:45 PM
    SOSMOM
    Prepaid Insurance Adjusting Entries
    Not sure exactly how to figure this or even to record it, here is what it looks like in my book:

    XX's accounting records include the following account balances:

    December 31,
    20X1 20X2
    Prepaid Insurance... $1,400 $1,600
    Unearned Service Revenue... $4,100 $3,100

    a. Paid the annual insurance premium of $4,800
    b. Made the year-end adjustment to record insurance expense for the year. You must compute this amount. This is what I am confused about the most!!
    c. Collected $17,000 cash in advance for service revenue to be earned later. Confused a little here too....
    d. Made the year-end adjustment to record the earning of $18,000 service revenue that had been collected in advance. ?????????


    1. Set up T accounts for prepaid insurance, insurance expense, unearned service revenue, and service revenue.Done Insert beginning and ending balances for prepaid Insurance and Unearned Revenue. not sure how to do this when I am not sure how to figure these?
    2. Journalize the entries a through d above and post to the T accounts . Ensure that the ending balances for prepaid insurance and unearned service revenue agree with the December 31, 20X2 balances given above.
  • Jan 23, 2007, 11:56 PM
    CaptainForest
    I am assuming that transactions a-d occurred during the 2002 year.

    Questions for you…
    Transaction A – were you given a date on which this insurance payment was made? To go into effect?

    Are we to assume insurance has gone up?

    Is there any other information given to you for this question?

    c)
    Dr. Cash 17,000
    Cr. Unearned Service Revenue 17,000

    You have received cash of 17,000, so your assets increases, so you debit it.

    You have not earned this cash, so you still owe it back to them, so you increase your liabilities by 17,000. Unearned Service Revenue is a Liability.

    d)
    You have preformed services for your client and they now owe you $18,000. Instead of them sending you money, you just decrease the money/liability you owe to them. Above they sent in $17,000, plus there was already $4,100 in the account at the beginning of the year.

    So,
    Dr. Unearned Service Revenue 18,000 (decreasing what you owe them in lieu pf payment)
    Cr. Revenue 18,000 (b/c you have earned the revenue)


    Unearned Service Revenue Summary:
    Dec. 31, 2001/Jan 1, 2002 = 4,100
    + 17,000 received during the year
    - 18,000 used up
    Ending balance on Dec. 31, 2002 of 4,100 + 17,000 – 18,000 = 3,100

    If you look above, it says you should have an ending balance of 3,100, so we know this is correct.


    T-Accounts
    A T-Account is pretty much what I showed you right above for balancing the Unearned Service Revenue.

    Unearned Service Revenue
    ……………….|….4,100
    ……………….|………..
    ……………….|………..
    ……………….|….3,100

    That is the T-account.

    Now, what numbers do we have to input into it so the ending balance does equal 3,100?

    Unearned Service Revenue
    ……………….|….4,100
    ……………….|…17,000
    18,000.….. |………..
    ……………….|….3,100

    Now, it works!

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