Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 32

Progression of Prepaid Expenses over Several Periods
Midwest Manufacturing purchased a three-year insurance policy for $30,000 on January 2, 2012. Prepare any journal entries, adjusting journal entries, and closing journal entries required on January 2, 2012, December 31, 2012, and December 31, 2013. Summarize these entries in T-accounts for Prepaid insurance, Insurance Expense, Cash, and Retained Earnings. Assume the January 2, 2012, balances in these accounts were $0, $0, $90,000, and $80,000, respectively. Given only the entries for insurance, indicate what amounts would be reported for each of these accounts on the balance sheet and income statement prepared on December 31, 2012, and December 31, 2013.