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A firm purchased a three-year insurance policy for $5,760 on July 1, 2019. The $5,760 was debited to the Prepaid Insurance 2. On December 1, 2019, a firm signed a contract with a local radio station for advertising that will extend over a two-year period. The account. firm paid $27,840 in advance and debited the amount to Prepaid Advertising Prepare end-of-month adjusting entries for each of the above situations.

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Answer:

The journal entries are as follows:

(i) Insurance expense A/c Dr. $160

        To prepaid insurance             $160

(To record the insurance expense)

Workings:

Insurance expense = cost of insurance policy ÷ 36 months

                                = $5,760 ÷ 36 months

                                = $160

(ii) Advertising expense A/c Dr. $1,160

           To prepaid advertising             $1,160

(To record the advertising expense)

Workings:

Advertising expense = cost of advertisement ÷ 24 months

                                   = $27,840 ÷ 24 months

                                   = $1,160

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