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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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At the beginning of the year, Commodore Company paid its $12,000 annual insurance premium for life insurance on its officers. The cash surrender value of the life insurance policies increased during the year from $8,500 to $10,000. Prepare the journal entries of Commodore to record the annual payment at the beginning of the year and the adjustment needed at the end of the year to recognize the change in surrender value.

To determine

Record the journal entries in the books of Company C for the annual payment at the beginning and the adjustment needed at the end of the year to recognize the change in the surrender value.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.

Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Record the prepaid insurance.

DateAccount Title and Explanation Debit ($) Credit ($)
Prepaid insurance12,000  
     Cash 12,000
 (To record the annual payment of the prepaid insurance)  

Table (1)

  • Prepaid insurance is an asset account and it is increased...

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