7-5 On September 1, 2021, Amy’s Floral Shop, Inc. paid cash for the following two insurance policies. Insurance Policy #1 Type of insurance coverage ................................. Auto and Truck Starting date of the insurance coverage ............... September 1, 2021 Period of time coverage is for ............................... 3 months Total cost of coverage paid in advance ................ $525 Insurance Policy #2 Type of insurance coverage ................................. Business Liability Starting date of the insurance coverage ............... September 1, 2021 Period of time coverage is for ............................... 4 months Total cost of coverage paid in advance ................ $1,400 The company has the accounting policy that all prepaid assets are initially recorded in asset accounts. The following is a partial list of the accounts in Amy’s General Ledger. These are the only accounts you need for this problem. Cash Prepaid Insurance (asset account) Insurance Expense Requirement 1 Prepare the General Journal entry to record the September 1 cash payment made to purchase the two insurance policies. Note that there is only one General Ledger account for Prepaid Insurance, and that the amount of Prepaid Insurance related to both insurance policies is kept in that one account. Requirement 2 Fill-in the amounts on the Auto and Truck Prepaid Insurance timeline. The boxes above the timeline show the amount of Auto and Truck Prepaid Insurance still remaining at various dates during the three month period. The boxes below the timeline show the amount of Auto and Truck Prepaid Insurance that expires (is used-up) during each of the three months. Requirement 3 Fill-in the amounts on the Business Liability Prepaid Insurance timeline. The boxes above the timeline show the amount of Business Liability Prepaid Insurance still remaining at various dates during the four month period. The boxes below the timeline show the amount of Business Liability Prepaid Insurance that expires (is used-up) during each of the four months. Requirement 4 Prepare a “T” account analysis to determine the required September 30 adjustment to the Prepaid Insurance account. Note that your "T" account analysis is for the Prepaid Insurance account, which contains the total amount of Prepaid Insurance for both insurance policies. Requirement 5 Prepare the September 30 General Journal adjusting entry for Prepaid Insurance. Requirement 6 Assuming that all monthly General Journal adjusting entries were correctly made and that no additional insurance has been purchased: What would be the amount of Prepaid Insurance shown on Amy’s Floral Shop, Inc.’s Balance Sheet as of October 31, 2021? What would be the amount of Insurance Expense on the Income Statement for the period October 1 to October 31, 2021?
7-5
On September 1, 2021, Amy’s Floral Shop, Inc. paid cash for the following two insurance policies.
Insurance Policy #1
Type of insurance coverage ................................. Auto and Truck
Starting date of the insurance coverage ............... September 1, 2021
Period of time coverage is for ............................... 3 months
Total cost of coverage paid in advance ................ $525
Insurance Policy #2
Type of insurance coverage ................................. Business Liability
Starting date of the insurance coverage ............... September 1, 2021
Period of time coverage is for ............................... 4 months
Total cost of coverage paid in advance ................ $1,400
The company has the accounting policy that all prepaid assets are initially recorded in asset
accounts.
The following is a partial list of the accounts in Amy’s General Ledger. These are the only accounts you need for this problem.
Cash
Prepaid Insurance (asset account)
Insurance Expense
Requirement 1
Prepare the General
the two insurance policies. Note that there is only one General Ledger account for Prepaid
Insurance, and that the amount of Prepaid Insurance related to both insurance policies is kept
in that one account.
Requirement 2
Fill-in the amounts on the Auto and Truck Prepaid Insurance timeline. The boxes above the
timeline show the amount of Auto and Truck Prepaid Insurance still remaining at various dates
during the three month period. The boxes below the timeline show the amount of Auto and
Truck Prepaid Insurance that expires (is used-up) during each of the three months.
Requirement 3
Fill-in the amounts on the Business Liability Prepaid Insurance timeline. The boxes above
the timeline show the amount of Business Liability Prepaid Insurance still remaining at various
dates during the four month period. The boxes below the timeline show the amount of
Business Liability Prepaid Insurance that expires (is used-up) during each of the four months.
Requirement 4
Prepare a “T” account analysis to determine the required September 30 adjustment to the
Prepaid Insurance account. Note that your "T" account analysis is for the Prepaid Insurance
account, which contains the total amount of Prepaid Insurance for both insurance policies.
Requirement 5
Prepare the September 30 General Journal adjusting entry for Prepaid Insurance.
Requirement 6
Assuming that all monthly General Journal
additional insurance has been purchased:
What would be the amount of Prepaid Insurance shown on Amy’s Floral Shop, Inc.’s
Balance Sheet as of October 31, 2021?
What would be the amount of Insurance Expense on the Income Statement for the
period October 1 to October 31, 2021?
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