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Accounting Question
On July 1 ,2010 Spahn Co, pays $18,000 to Randle Insurance co. For 3year insurance contract. Both companies have fiscal years ending December 31. Prepare the journal entry on July 1 on and the adjusting entry on December 31 for Randle insurance Co
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For the purchase of the policy the journal entry will be:
Debit Prepaid Insurance for 18,000 Credit Cash for 18,000 For the adjusting entry you need to calculate the monthly rate first, by taking $18,000 divided by 36 months, then calculate the number of months used, which is 6 months times the monthly rate to get the amount of interest used. Your journal entry will be: Debit Interest Expense for the amount calculated above Credit Prepaid Insurance for the amount calculated above |
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