Question

Gibson Company paid $24,000 on June 1, 2017 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2017 adjusting entry is

a. No entry
b. Unearned Rent Revenue 8,000
Rent Revenue 8,000
c. Rent Revenue 8,000
Unearned Rent Revenue 8,000
d. Unearned Rent Revenue 16,000
Revenue Revenue 16,000

Answer 1

Dr Prepaid insurance 16000

Cr Insurance expense 16000

Step-by-step explanation:

Since Gibson company already recorded the full amount of $24000 which was for 2 years and only half a year has past, so you take 24000×3/4=16000

So you need to undo your error and derecognise the 16000 because it's a prepaid expense