Njuly 1, 2017, sheridan company pays $12,500 to oriole company for a 2-year insurance contract. both companies have fiscal years ending december 31. collapse question part (a) for sheridan company, journalize the entry on july 1 and adjusting entry on december 31. (record journal entries in the order presented in the problem. if no entry is required, select "no entry" for the account titles and enter 0 for the amounts. credit account titles are automatically indented when the amount is entered. do not indent manually.)

Sheridan Company records:

July 1st

December 31st adjusting entry

At first, the company will record the insurance as an asset because, they adquire the right to get insurance. Therefore, as time past, they will decrease it as the insurance expires a portion each month.

12,500 for 2 years

12,500 / 24 months = 520.83 per month

6 month = 3,125 expired amount.

Explanation:

The journal entries are shown below:

July 1: Prepaid insurance A/c Dr   $12,500

               To Cash A/c                                       $12,500

(Being advance insurance is paid in cash)

July 31:  Insurance expense A/c $3,125

                  To Prepaid insurance             $3,125

(Being adjusted entry made)

The calculation of insurance expense is shown below:

= (Insurance ÷ total number of months in a two year ) × number of months

= ($12,500 ÷ 24 months) × 6 months

= $3,125

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