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    Orlow Co. pays $12,000 to Pizner Insurance Co: Prepaid Insur

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    Prepare adjusting entry for prepaid expenses.
    On July 1, 2006, Orlow Co. pays $12,000 to Pizner Insurance Co. for a 3-year insurance contract. Both companies have fiscal years ending December 31. For Orlow Co., journalize and post the entry on July 1 and the adjusting entry on December 31.

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    Solution Preview

    Orlow

    July 1:

    DEBIT: Prepaid insurance........$12,000
    CREDIT: Cash........................................$12,000

    This sets up the ...

    $2.19

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