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    Solution: Jan. 1, 20x1: Other Long-Term Investments Problem 1: 1-True Problem 2: For Classroom Discussion

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    Francesca Norweign Josdue
    This document contains sample accounting problems and solutions related to long-term investments in life insurance policies. It includes journal entries recording the purchase and amortization of prepaid insurance over time. It also provides examples of calculating gains or losses on settlements of life insurance contracts based on cash surrender values.

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    Solution: Jan. 1, 20x1: Other Long-Term Investments Problem 1: 1-True Problem 2: For Classroom Discussion

    Uploaded by

    Francesca Norweign Josdue
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    This document contains sample accounting problems and solutions related to long-term investments in life insurance policies. It includes journal entries recording the purchase and amortization of prepaid insurance over time. It also provides examples of calculating gains or losses on settlements of life insurance contracts based on cash surrender values.

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    This document contains sample accounting problems and solutions related to long-term investments in life insurance policies. It includes journal entries recording the purchase and amortization of prepaid insurance over time. It also provides examples of calculating gains or losses on settlements of life insurance contracts based on cash surrender values.

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    © All Rights Reserved
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    Download as doc, pdf, or txt
    16 views3 pages

    Solution: Jan. 1, 20x1: Other Long-Term Investments Problem 1: 1-True Problem 2: For Classroom Discussion

    Uploaded by

    Francesca Norweign Josdue
    This document contains sample accounting problems and solutions related to long-term investments in life insurance policies. It includes journal entries recording the purchase and amortization of prepaid insurance over time. It also provides examples of calculating gains or losses on settlements of life insurance contracts based on cash surrender values.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 3

    Chapter 12

    Other Long-term Investments

    PROBLEM 1: 1-TRUE
    PROBLEM 2: FOR CLASSROOM DISCUSSION
    1. D
    2. Solution:
    Jan. 1, 20x1
    Prepaid insurance 50,000
    Cash 50,000

    Dec. 31, 20x1


    Insurance expense 50,000
    Prepaid insurance 50,000

    December 31, 20x3


    Cash surrender value 90,000
    Insurance expense 30,000
    Retained earnings 60,000

    September 1, 20x4
    Cash 3,000
    Insurance expense 3,000

    December 31, 20x4


    Cash surrender value 20,000
    Insurance expense 20,000

    Jan. 1, 20x5
    Prepaid insurance 50,000
    Cash 50,000

    July 1, 20x5
    Insurance expense 25,000
    Prepaid insurance (50K x 6/12) 25,000

    Cash 5,000,000
    Prepaid insurance (50K x 6/12) 25,000
    Cash surrender value 120,000
    {110K + [(130K – 110K) x 6/12]}
    Gain on life insurance 4,855,000

    PROBLEM 3: EXERCISE
    Solution:
    (a) 1/1/x1
    Prepaid Insurance 50,000
    Cash 50,000
    Insurance expense 50,000
    Prepaid Insurance 50,000

    (b) 12/31/x3
    Cash surrender value 18,000
    Insurance expense 6,000
    Retained earnings 12,000

    (c) 4/1/x4
    Cash 4,000
    Insurance expense 4,000

    (d) 12/31/x4
    Cash surrender value 3,000
    Insurance expense 3,000

    (e) 1/1/x5
    Prepaid Insurance 50,000
    Cash 50,000

    (f) 3/31/x5
    Insurance expense (50,000 x 3/12) 12,500
    Prepaid insurance 12,500

    Cash 1,000,000
    Cash surrender value 23,750*
    Prepaid Insurance (50K x 9/12) 37,500
    Gain on settlement of life insurance 938,750

    *21,000 + [(32,000 – 21,000) x 3/12] = 23,750

    PROBLEM 4: CLASSROOM ACTIVITY


    1. Solutions:
    Requirement (a):
    Year Insurance expense
    20x1 280,000
    20x2 280,000
    20x3 [280K - (180K ÷ 3)] 220,000
    20x4 [280K - 4K - (216K - 180K)] 240,000
    20x5 (280K x 9/12) 210,000

    Requirement (b):
    Cash 10,000,000
    Cash surrender value 249,000*
    Insurance expense (280K x 3/12) 70,000
    Gain on settlement of life insurance 9,681,000

    *216,000 + [(260,000 – 216,000) x 9/12] = 249,000

    PROBLEM 5: MULTIPLE CHOICE - THEORY


    1. C
    2. C
    3. D
    4. C
    5. D

    PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL


    1. B (450,000 + 90,000 + 15,000 + 30,000 – 5,000) = 580,000
    2. C (1,000,000 ÷ 5.11) = 195,700
    3. C [40,000 – (108,000 – 87,000) increase in cash surrender value taking into
    account the dividends received] = 19,000
    4. B
    Solution:
    Total annual premiums paid (4,000 x 4 yrs.) 16,000
    Total life insurance expense (12,800)
    Investment in cash surrender value 3,200
    5. A

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