Revenue recognition, cost expiration, and cash flows
Prustate Insurance Company collected $240,000 from Jacobs Printing Corporation for a two-year fire insurance policy on May 31, 2011. The policy is in effect from June 1, 2011, to May 31, 2012.
REQUIRED:
a. Assume that Prustate Insurance Company recorded the $240,000 cash collection as a liability on May 31, 2011.
- Prepare the entry to record the cash collection.
- Prepare the adjusting entry necessary on December 31, 2011.
- What was the purpose of the adjusting journal entry on December 31, 2011?
- Complete a chart like the following:
|
2011 |
2012 |
Total |
|
Insurance revenue |
||
|
Cash receipt associated with insurance |