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25 February, 07:02

Mouse Inc. uses the alternative method of accounting for prepayments and purchased a $1,200, 6-month insurance policy. The company immediately debited the Insurance expense account. By the end of the period, $400 of the policy had expired. Demonstrate the required adjustment needed at the end of the period.

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  1. 25 February, 10:51
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    The adjusting journal entry to record the given adjustment is shown below:

    At the year-end

    Insurance expense A/c Dr. A/c $800

    To Prepaid Insurance A/c $800

    (Being insurance expense is recorded)

    The computation is given below:

    = Prepayment done for 6 months insurance policy - expired insurance

    = $1,200 - $400

    = $800
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