Question

The prepaid insurance account had a balance of $11,300 at the beginning of the year. The account was debited for $12,500 for premiums on policies purchased during the year. Journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment:

a. The amount of unexpired insurance applicable to future periods is $2,100.
b. The amount of insurance expired during the year is $14,400

Answer 1

A. Dr Insurance expense $21,700

Cr Prepaid insurance $21,700

B. Dr Insurance expense $14,400

Cr Prepaid insurance $14,400

Step-by-step explanation:

A. Preparation of the adjusting entry if the

amount of unexpired insurance applicable to future periods is $2,100.

Dr Insurance expense $21,700

Cr Prepaid insurance $21,700

($11,300 + $12,500 - $2,100 = $21,700)

B. Preparation of the adjusting entry if The amount of insurance expired during the year is $14,400

Dr Insurance expense $14,400

Cr Prepaid insurance $14,400