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19 February, 18:42

Hoffman, Inc. adjusts its books each month but closes its books at the end of the year. The trial balance at March 31 before adjustments is as follows:

Debit Credit

Cash $11,120

Accounts Receivable 9,820

Supplies 1,500

Prepaid Insurance 2,720

Equipment 21,000

Accumulated Depreciation: Equipment $8,400

Unearned Service Revenue 7,500

Capital Stock 6,200

Retained Earnings 24,400

Dividends 1,760

Service Revenue Earned 13,110

Salaries Expense 8,800

Utilities Expense 590

Rent Expense 2,300

$59,610 $59,610

On March 1, Hoffman paid in advance for four months' insurance. The necessary adjusting entry at March 31 includes which of the following?

a. A debit to Prepaid Insurance for $2,040.

b. A debit to Prepaid Insurance for $680.

c. A credit to Prepaid Insurance for $2,040.

d. A credit to Prepaid Insurance for $680.

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Answers (1)
  1. 19 February, 21:16
    0
    d. A credit to Prepaid Insurance for $680.

    Explanation:

    The computation of the prepaid insurance is shown below:

    Given that

    Four month prepaid insurance = $2,720

    For one month, the prepaid insurance is

    = $2,720 : 4 months

    = $680

    Since we have to record the prepaid expenses for 1 month, we divided the total prepaid insurance by the 4 months due to that it decreases by $680 and that's why we credited this account
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