Prepaid Insurance shows a balance of zero at September 30, but Insurance Expense shows a debit balance of $2,700, representing the cost of a three-year fire insurance policy that was purchased on September 1 of the current year. On August 31 of this year, Cash was debited and Service Revenue was credited for $1,800. ?A. The $1,800 related to fees for a three-month period beginning September 1 of the current B. The company’s income tax rate is 39%. After making the above adjustments, SPC's net income before tax is $10,000. C. No income tax has been paid or recorded.

Explanation:

The journal entries are shown below:

1. Prepaid insurance A/c Dr $2,625

     To Insurance expense $2,625

(Being the insurance is transferred to prepaid insurance)

The computation is shown below:

= $2,700 - $2,700 × 1 months ÷ 36 months

= $2,700 - $75

= $2,625

2. Service revenue A/c Dr $1,200

        To Unearned Service revenue $1,200

(Being the unearned service revenue is recorded)

The computation is

= $1,800 × 2 months ÷ 3 months

=  $1,200

3. Income Tax Expense A/c $3,900

                 To Income Tax Payable A/c $3,900

(Being the income tax expense is recorded)

The computation is

= $10,000 × 39%

= $3,900