Question

On December 1, a six-month liability insurance policy was purchased for $1,134. Analyze the required adjustment as of December 31 using T accounts, and then formally enter this adjustment in the general journal. (Trial balance is abbreviated as TB.)

Answer 1

Answer and Explanation:

As the insurance policy would be for 6 months

So per month it is

= $1,134 ÷ 6 months

= $189

Now the T account is

Prepaid insurance

Opening balance $1,134 Insurance expense $189

balance $945

Income statement

Adjustment $189

Journal entry

Insurance expense $189

To Prepaid insurance $189

(Being insurance expense is recorded)