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Homework answers / question archive / On July 1, 2006, Orlow Co
On July 1, 2006, Orlow Co. pays $12,000 to Pizner Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending December 31. For Orlow Co., journalize and post the entry on July 1 and the adjusting entry on December 31.
Please see attachment and response provided.
In the books of Orlow Co.
Journal entries
Date Particulars Debit Credit
July 1, 2006 Insurance A/C 12000
Cash 12000
Amount paid for insurance.
Dec 31,2006 Prepaid insurance A/c 10000
Insurance A/C 10000
Adjustment entry for prepaid
insurance recorded
Note :-
Calculation of prepaid insurance =(Amount paid/ No. of years) * Balance period
= (12000/3)*0.5
=2000
