Answer:
Dr Prepaid insurance 22,000
Cr cash 22,000
Dr Insurance expense 5,500
Cr Prepaid insurance 5,500
Explanation:
Preparation of Journal entries
Based on the information given we were told that Sandhill Company pays the amount of $22,000 to another company which is Cullumber Company for a 2-year insurance contract in which Both the companies have fiscal years that is ending December 31 which means that the Journal entry will be recorded as:
Dr Prepaid insurance 22,000
Cr cash 22,000
Dr Insurance expense 5,500
Cr Prepaid insurance 5,500
[(22,000*6/12)/2]
Dr Prepaid insurance 22,000
Cr cash 22,000
(Being cash paid is recorded)
here prepaid insurance is debited since it increased the assets and credited the cash since it decreased the assets
And,
Dr Insurance expense 5,500 ($22,000 ÷24 × 6)
Cr Prepaid insurance 5,500
(Being adjusted entry is recorded)
here insurance expense is debited since it increased the expense and credited the prepaid insurance since it decreased the assets
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