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Question 3   10 Marks High Class Painting purchased a 1-year insurance policy on 1 March 2020....

Question 3   10 Marks

High Class Painting purchased a 1-year insurance policy on 1 March 2020. The entire premium of $9000 was recorded by debiting Prepaid Insurance. Ignore GST.

Required
(a) Give the adjusting entry at 30 June for the financial year ending 30 June 2020.

Type your answers to (a) in the Table included in the Response Template below.

(b) What amount should be reported in the 30 June 2020 Statement of Financial Position for Prepaid Insurance? What type of account should this be? Show calculations.

Type your answers to (b) in the Response Template below.

(c) If no adjusting entry was made on 30 June, by how much would profit be overstated or understated? Would assets be overstated or understated? Explain.

Type your answers to (c) in the Response Template below.

(d) What would your adjusting entry in requirement A be if the premium of $9000 was recorded by debiting Insurance Expense?

Type your answers to (d) in the Table included in the Response Template below.

Question 3   10 Marks

High Class Painting purchased a 1-year insurance policy on 1 March 2020. The entire premium of $9000 was recorded by debiting Prepaid Insurance. Ignore GST.

Required
(a) Give the adjusting entry at 30 June for the financial year ending 30 June 2020.
Type your answers to (a) in the Table below.

Account   Dr Cr


(b) What amount should be reported in the 30 June 2020 Statement of Financial Position for Prepaid Insurance? What type of account should this be? Show calculations.

Type your answers to (b) here.

(c) If no adjusting entry was made on 30 June, by how much would profit be overstated or understated? Would assets be overstated or understated? Explain.

Type your answers to (c) here.

(d) What would your adjusting entry in requirement A be if the premium of $9000 was recorded by debiting Insurance Expense?

Type your answers to (d) in the Table below.

Account Dr Cr

Type your answers here.

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