On July 1, 2020, Concord Co. pays $13,860 to Marigold Insurance Co. for a 3-year insurance policy. Both companies have fiscal years ending December 31. For Concord Co., journalize the entry on July 1 and the adjusting entry on December 31.

Answer and Explanation:

The journal entries are shown below:

On July 1

Prepaid insurance$13,860      

         To Cash  $13,860

(Being cash paid is recorded)  

Here prepaid insurance is debited as it increased the asset and credited the cash as it decreased the assets  

On Dec 31

Insurance expenses $2,310($13,860 ÷ 3 ÷ 2)  

          To Prepaid insurance  $2,310

(Being prepaid insurance is recorded)

Here insurance expense is debited as it increased the expense and credited the prepaid insurance as it decreased the assets

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