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# Adjusting Entries - Khan Company

A review of the ledger of Khan Company at December 31, 2006, produces the following
data pertaining to the preparation of annual adjusting entries.

1. Prepaid Insurance \$9,800. The company has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on July 1, 2005, for \$6,000. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on January 1, 2006, for \$4,800. This policy has a term of 2 years.

2. Unearned Subscriptions \$49,000. The company began selling magazine subscriptions in 2006 on an annual basis. The magazine is published monthly. The selling price of a subscription is \$50. A review of subscription contracts reveals the following.

Subscription Number of
Date Subscriptions
October 1 200
November 1 300
December 1 480
980 (total)

#### Solution Preview

1. Building policy = \$6000 / 3 years = \$2000/yr
Vehicle policy = \$4800 / 2 = \$2400/yr

Entry
Debit Insurance expense \$4400
Credit Prepaid insurance \$4400
To expense 12 months of ...

#### Solution Summary

The solution shows the calculation details for arriving at the amount needed for the adjusting entries. The entries are also shown with a description followed by a proof of the amounts.

\$2.19