Question

Policy Date of Purchase Months of Coverage Cost A April 1, 2015 24 $ 11,400 B April 1, 2016 36 10,224 C August 1, 2017 12 9,000 The total premium for each policy was paid in full (for all months) at the purchase date, and the Prepaid Insurance account was debited for the full cost. (Year-end adjusting entries for Prepaid Insurance were properly recorded in all prior years.) The company has 15 employees, who earn a total of $2,100 in salaries each working day. They are paid each Monday for their work in the five-day workweek ending on the previous Friday. Assume that December 31, 2017, is a Tuesday, and all 15 employees worked the first two days of that week. Because New Year’s Day is a paid holiday, they will be paid salaries for five full days on Monday, January 6, 2018. The company purchased a building on January 1, 2017. It cost $820,000 and is expected to have a $45,000 salvage value at the end of its predicted 25-year life. Annual depreciation is $31,000. Since the company is not large enough to occupy the entire building it owns, it rented space to a tenant at $3,200 per month, starting on November 1, 2017. The rent was paid on time on November 1, and the amount received was credited to the Rent Earned account. However, the tenant has not paid the December rent. The company has worked out an agreement with the tenant, who has promised to pay both December and January rent in full on January 15. The tenant has agreed not to fall behind again. On November 1, the company rented space to another tenant for $2,899 per month. The tenant paid five months' rent in advance on that date. The payment was recorded with a credit to the Unearned Rent account.

Answer 1

General Journal	Debit	Credit
Insurance expense	8,583
Prepaid insurance		8,583
Salaries expense	4,200		=2100*2
Salaries payable		4,200
Depreciation expense—Building	31,000
Accumulated depreciation—Building		31,000
Rent receivable	3,200
Rent earned		3,200
Unearned rent	5,798		=2899*2
Rent earned		5,798
2
Salaries payable	4,200
Salaries expense	6300
Cash		10,500
Cash	6400
Rent receivable		3200
Rent earned		3200
Insurance expense calculation:
Policy A = 11400/24*3= $1425
Policy B = 10224/36*12= $3408
Policy C = 9000/12*5= $3750
Insurance expense= 1425+3408+3750= $8583