The balance in the prepaid insurance account before adjustment at the end of the

Question

The balance in the prepaid insurance account before adjustment at the end of the year is $4,800, which represents the insurance premiums for four months. The premiums were paid on November 1. The adjusting entry required on December 31 is:

Debit Insurance Expense, $2,400; credit Prepaid Insurance, $2,400. Debit Prepaid Insurance, $2,400; credit Insurance Expense, $2,400. Debit Prepaid Insurance, $1,200; credit Insurance Expense, $1,200. Debit Insurance Expense, $1,200; credit Prepaid Insurance, $1,200. Debit Cash, $4,800; Credit Prepaid Insurance, $4,800.

Explanation / Answer

REASON:-INSURANCE PAID FOR NOV & DEC WILL BR RECOREDED AS CURRENT YEAR EXPENSES.

WHILE INSURANCE PAID FOR JAN & FEB WILL BE TREATED AS PREPAID INSURANCE AND WILL BE TREATED AS ASSET.

4800*(2/4)=$2400

Debit Insurance Expense, $2400; credit Prepaid Insurance, $2400

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