Question: Apex is a retailer of shoes. The following information is yet to be recorded

-Apex paid insurance of $48,000 for 12 months on 1 September 2021 to BATA Ltd.

-Apex uses the expense method to account for insurance.

-BATA Ltd uses the liability method to account for insurance.

The year end is 31 December 2021.

Required:

In the accounts of Apex

a) Prepare the journal entry for the payment of insurance

b) Prepare the balance day adjustment entry at 31 December 2021

c) For Apex show how, the information related to insurance will appear in the income statement and balance sheet at 31 December 2021

d) Briefly explain why a reversing entry is required for Apex for Prepaid Insurance Expense method

In the accounts of BATA

(a) Prepare the journal entry for the receipt of insurance

(b) Prepare the balance day adjustment entry at 31 December 2021

(c) For BATA show how, the information related to insurance will appear in the income statement and balance sheet at 31 December 2021.

(d) Briefly explain why a reversing entry is not required for BATA following Unearned Insurance Revenue following liability method.