Prustate Insurance Company collected $240,000 from Jacobs Printing Corporation for a two-year fire insurance policy on May 31, 2020. The policy is in effect from June 1, 2020, to May 31, 2021.

INSTRUCTIONS:
a. Assume that Prustate Insurance Company recorded the $240,000 cash collection as a liability on May 31, 2020.
1. Prepare the entry to record the cash collection.
2. Prepare the adjusting entry necessary on December 31, 2020.
3. What was the purpose of the adjusting journal entry on December 31, 2020?
4. Complete a chart like the following:

b. Assume that Jacobs Printing Corporation recorded the $240,000 cash payment as an asset on May 31, 2020.
1. Prepare the entry to record the cash payment.
2. Prepare the adjusting entry necessary on December 31, 2020.
3. What was the purpose of the adjusting journal entry on December 31, 2020?
4. Complete a chart like the following:

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2020 2021 2022 Total Insurance revenue Cash receipts associated with insurance