X Company prepares annual financial statements. On July 1, 2015, X Company paid

Question

X Company prepares annual financial statements. On July 1, 2015, X Company paid $21,000 in advance for a two-year insurance policy. After the adjusting entry on December 31, 2015, what will the financial statements show?

Options:
Prepaid Insurance, $2,625;   Insurance expense, $18,375
Prepaid Insurance, $15,750;   Insurance expense, $5,250
Prepaid Insurance, $0;   Insurance expense, $21,000
Prepaid Insurance, $5,250;   Insurance expense, $15,750
Prepaid Insurance, $18,375;   Insurance expense, $2,625
Prepaid Insurance, $21,000;   Insurance expense, $0

Explanation / Answer

  Prepaid Insurance, $15,750;   Insurance expense, $5,250

Insurance $        21,000 Period   24 months Expense (21000/24*6) $          5,250 Prepaid (Balance ) $        15,750

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