On January 1 a company purchased a five-year Insurance policy for $3,200 with co

Question

On January 1 a company purchased a five-year Insurance policy for $3,200 with coverage starling immediately. If the purchase was recorded n the Prepaid Insurance account, and the company records adjustments only a: year-end, the adjusting entry at the end of the first year Is: Debit Prepaid Insurance. $3,200. credit Cash, $3,200 Debit Prepaid Insurance. $640. credit Insurance Expense. $640 Debit Prepaid Insurance. $2,660. credit Insurance Expense. $2,560 Debit Insurance Expense, $640. credit Prepaid Insurance. $640 Debit Insurance Expense. $640: Credit Proprvd Insurance. $2,560

Explanation / Answer

Debit insurance expense $640 and credit prepaid insurance $640

(3200/5 = $640 has expired hence we will pass entry for expired portion)

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