Chapter 7 - Adjusting Entries Problem 7-5 Prepaid Insurance and the Monthly Prepaid Insurance Adjusting Entry SOLID FOOTING 89 On September 1, 2021, Amy's Floral Shop, Inc. paid cash for the following two insurance policies. Insurance Policy #1 Type of insurance coverage....... Starting date of the insurance coverage Period of time coverage is for ......... Total cost of coverage paid in advance Insurance Policy #2 Type of insurance coverage .......... Starting date of the insurance coverage Period of time coverage is for ....... Auto and Truck September 1, 2021 3 months $525 Business Liability September 1, 2021 4 months Total cost of coverage paid in advance $1,400 The company has the accounting policy that all prepaid assets are initially recorded in asset accounts. The following is a partial list of the accounts in Amy's General Ledger. These are the only accounts you need for this problem. Cash Prepaid Insurance (asset account) Insurance Expense Use the forms on Tabs 7-5 A and 7-5 B. in the Excel workbook Chapter 07 c - Problem 7-1 to 7-8 Forms to complete this problem. Requirement 1 Prepare the General Journal entry to record the September 1 cash payment made to purchase the two insurance policies. Note that there is only one General Ledger account for Prepaid Insurance, and that the amount of Prepaid Insurance related to both insurance policies is kept in that one account. Requirement 2 Fill-in the amounts on the Auto and Truck Prepaid Insurance timeline. The boxes above the timeline show the amount of Auto and Truck Prepaid Insurance still remaining at various dates during the three month period. The boxes below the timeline show the amount of Auto and Truck Prepaid Insurance that expires (is used-up) during each of the three months. Requirement 3 Fill-in the amounts on the Business Liability Prepaid Insurance timeline. The boxes above the timeline show the amount of Business Liability Prepaid Insurance still remaining at various dates during the four month period. The boxes below the timeline show the amount of Business Liability Prepaid Insurance that expires (is used-up) during each of the four months. (Problem 7-5 continued on the next page) Problem 7-5 (continued) Requirement 4 Prepare a "T" account analysis to determine the required September 30 adjustment to the Prepaid Insurance account. Note that your "T" account analysis is for the Prepaid Insurance account, which contains the total amount of Prepaid Insurance for both insurance policies. Requirement 5 Prepare the September 30 General Journal adjusting entry for Prepaid Insurance. Requirement 6 Assuming that all monthly General Journal adjusting entries were correctly made and that no additional insurance has been purchased: What would be the amount of Prepaid Insurance shown on Amy's Floral Shop, Inc.'s Balance Sheet as of October 31, 2021? What would be the amount of Insurance Expense on the Income Statement for the period October 1 to October 31, 2021? Problem 7-6 Weekly Wage Payment Entries and the Month-End Wages Payable Adjusting Entry Baker Construction, Inc. pays its employees each Friday for the work they performed that week. Baker's employees only work on Monday through Friday. They do not work on Saturday or Sunday. Baker produces monthly financial statements; thus they prepare adjusting entries at the end of each month. For the month of June, the last payday was on Friday June 25th. The last day of June was on Wednesday June 30th. The first payday of July was on Friday July 2nd. The following partial calendar shows these days and dates: Sunday Monday Tuesday Wednesday Thursday Friday Saturday June 20 June 21 June 27 June 28 June 22 June 29 June 23 June 30 June 24 June 25 June 26 July 1 July 2 July 3 The following table shows the amount the employees were paid on Friday June 25th and on Friday July 2nd. The table also shows the data required to calculate the amount the employees earned for the last three workdays of June. Wages paid on Friday, June 25th Wages paid on Friday, July 2nd $6,200 . $5,950--- Data for June 28, 29, & 30 - the last three days worked in June: Number of employees working each day Hours each employee worked per day Hourly wage rate _ 10 employees per day .8 hours per day $16 per hour Problem 7-5 Prepaid Insurance and the Monthly Prepaid Insurance Adjusting Entry Requirement 1 -- September 1 advance payment of the two insurance policies Date Account Name Debit Credit Requirement 2 -- Auto and Truck Prepaid Insurance timeline In the boxes above the timeline, indicate the amount of remaining Prepaid Insurance related to the Auto and Truck insurance policy for each date on the timeline. In the boxes below the timeline, indicate the amount of Prepaid Insurance that expires (is used-up) during each of the three months. Sept. 1 September +Sept. 30 October Oct. 31 November >Nov. 30 Month 1 Month 2 Month 3 Requirement 3 -- Business Liability Prepaid Insurance timeline In the boxes above the timeline, indicate the amount of remaining Prepaid Insurance related to the Business Liability insurance policy for each date on the timeline. In the boxes below the timeline, indicate the amount of Prepaid Insurance that expires (is used-up) during each of the four months. >Sept. 1 September +Sept. 30 Oct. 31 October November >Nov. 30 Dec. 31 December Month 1 Month 2 Month 3 Month 4 Pg. A Problem 7-5 Prepaid Insurance and the Monthly Prepaid Insurance Adjusting Entry Requirement 4 -- "T" Account Analysis for the Sept. 30 Prepaid Insurance adjusting entry Note that the Prepaid Insurance account contains the total amount of prepaid insurance for both the Auto and Truck insurance policy and the Business Liability insurance policy. "T" Account Analysis for Asset and Liability Accounts (1) What is the current balance? (3) What adjustment is required to adjust from the current balance to the should be balance? (2) What should be the balance? Account Name Requirement 5 -- September 30 Prepaid Insurance adjusting entry Date Account Name Requirement 6 Amount of Prepaid Insurance on the October 31 Balance Sheet Prepaid Insurance Debit Credit Debit Credit Amount of Insurance Expense on the October 1 to October 31 Income Statement Pg. B