The following account balances are taken from the records of Chauncey Company at December 31, 2010. The Prepaid Insurance account represents the cost of a three-year policy purchased on August 1, 2010. The Rent Collected i Advance account represents the cash received from a tenant on June 1, 2010, for 12 months' rent beginning on that date. The Note Receivable represents a nine-month promissory note received from a customer on September 1, 2010. Principal and interest at an annual rate of 9% will be received on June 1, 2011.
Prepaid Insurance $ 7,200 debit
Rent Collected in Advance $6,000 credit
Note Receivable $ 50,000 debit
Required
1. Prepare the three necessary adjusting entries on the books of Chauncey on December 31, 2010. Assume that Chauncey prepares adjusting entries only once a year, on December 31.
2. Assume that adjusting entries are made at the end of each month rather than only at the end of the year. What would be the balance in Prepaid Insurace before the December adjusting entry was made? Explain your answer.