The balance in the prepaid insurance account before adjustment at the end of the year is $27,000. Journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment;

(A) the amount of insurance expired during the year is $20,250;

(B) the amount of unexpired insurance applicable to futre periods is $6,750.

(A) Debit Insurance expense $20,250

Credit Prepaid insurance $20,250

Being entries to recognize insurance amortization expense for the year.

(B) Debit Insurance expense $20,250

Credit Prepaid insurance $20,250

Being entries to recognize insurance amortization expense for the year.

Explanation:

Prepaid insurance account before adjustment = $27,000

(A) the amount of insurance expired during the year is $20,250

To account for the expired amount,

Debit Insurance expense $20,250

Credit Prepaid insurance $20,250

Being entries to recognize insurance amortization expense for the year.

(B) the amount of unexpired insurance applicable to future periods is $6,750

Amount expired = $27,000 - $6,750

= $20,250

To account for the expired amount such that the amount of unexpired insurance applicable to future periods is $6,750,

Debit Insurance expense $20,250

Credit Prepaid insurance $20,250

Being entries to recognize insurance amortization expense for the year.