On June 1, 2010, Bere Co. paid $4,500 to Sting Insurance Company for a one-year insurance policy. Bere Co. has a December 31 fiscal year end and adjusts accounts annually. Complete the following for Bere Co.


1.Prepare the June 1, 2010, journal entry.


2.Calculate the amount of insurance that expired during 2010 and the unexpired cost at December 31, 2010.

Expired during 2010: $

Unexpired cost at December 31, 2010: $


3.Prepare the adjusting entry required at December 31, 2010.

You need to calculate how much insurance was used from Jun 1 to Dec 31. You take the cost of $4,500 times the number of months used, which is 7 / 12 months. Or $4,500 * 7/12 = Insurance used.

Your journal entry will be:
Debit Insurance Expense for the amount calculated above
Creidt Prepaid Insurance for the amount calculated above.

You do not enough information in the problem to calculate total amount of Insurance expired during the year. If it simply based on what you have provided it is simply the amount you have calculated above. If you have an Insurance Expense Account with an amount given you would add that amount with the amount calculated above. If you know the amount of Prepaid Insurance at the beginning of the year you can add this number to the amount calculated above. If you know how much the insurance cost you in Jun 2009 you can calculate 5 months of insurance used plus the amount calculated above.

To calculate the remaining amount of insurance in Prepaid Insurance simply take your cost $4,500 minus the amount calculated above.

Quote:

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Originally Posted by pready

You need to calculate how much insurance was used from Jun 1 to Dec 31. You take the cost of $4,500 times the number of months used, which is 7 / 12 months. Or $4,500 * 7/12 = Insurance used.

Your journal entry will be:
Debit Insurance Expense for the amount calculated above
Creidt Prepaid Insurance for the amount calculated above.

You do not enough information in the problem to calculate total amount of Insurance expired during the year. If it simply based on what you have provided it is simply the amount you have calculated above. If you have an Insurance Expense Account with an amount given you would add that amount with the amount calculated above. If you know the amount of Prepaid Insurance at the beginning of the year you can add this number to the amount calculated above. If you know how much the insurance cost you in Jun 2009 you can calculate 5 months of insurance used plus the amount calculated above.

To calculate the remaining amount of insurance in Prepaid Insurance simply take your cost $4,500 minus the amount calculated above.

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so, for
Debit Insurance Expense will be 4500
Creidt Prepaid Insurance will be 4500

but for the Expired during 2010 and the
Unexpired cost at December 31, 2010 "will be 2625"

3.Prepare the adjusting entry required at December 31, 2010.

I put debit prepaid Insurance... 2625
and credit Insurance expense... 2625
calculating the 4500*(7/12)=2625

Your first entry to record the purchase of insurance will be:
Debit Prepaid Insurance for 4,500
Credit Cash for the amount

Your entry to record the insurance used for the period of Jun1 to Dec31 will be:
Debit Insurance Expense for 7 months used insurance
Credit Prepaid Insurance for 7 months used insurance.

Your expired insurance is the amount in your Insuarance Expense account or the amount you calculated for the 7 months used insurance.

Your unexpired insurance will be $4,500 of beginning Prepaid Insurance minus the 7 months used insurance.

expired 2010 =6/12*4500=2250 and unexpired is also 2250