% ; , Sat 10:26 PM a culearn.carleton.ca ral MyCarleton Emal You are logged in a

Question

% ; , Sat 10:26 PM a culearn.carleton.ca ral MyCarleton Emal You are logged in as Jiawer Xu (Log out Beach Company paid $ 3926 on June 1, 20x8 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 20x8 adjusting entry is: Select one: a. Debit Insurance Expense and credit Prepaid Insurance, $2781 b. Debit Prepaid Insurance and credit Insurance Expense, $1145 c. Debit Prepaid Insurance and credit Insurance Expense, $2781 d. Debit Insurance Expense and credit Prepaid Insurance, $1145 Check

Explanation / Answer

c.debit prepaid insurance and credit insurance expense, $2781.

the actual entry on june 1 should have been,

but the entry passed was:

now, the adjusting entry on december 31, will be:

to debit prepaid insurance by amount of insurance for remaining (24 months - 7 months expired this year)=>17 months.

and to credit the insurance expense by the same amount. (since it was erronoeously debited with full amount paid).

the following will be the adjusting entry:

june 1 Prepaid insurance expense a/c.....dr $3,926 .................To cash a/c $3,926

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