What is the proper adjusting entry on December 31, the end of the accounting period, if the balance in the prepaid insurance account is $8,150 before adjustment, and the unexpired amount per the analysis of policies is $3,450?

A. Debit Insurance Expense, $8,150; credit Prepaid Insurance, $8,150.

B. Debit Prepaid Insurance, $4,700; credit Insurance Expense, $4,700.

C. Debit Insurance Expense, $3,450; credit Prepaid Insurance, $3,450.

D. Debit Insurance Expense, $4,700; credit Prepaid Insurance, $4,700.

E. Debit Cash, $8,150; Credit Prepaid Insurance, $8,150.

Question

Business

Dennis Ray

22 August, 16:02

What is the proper adjusting entry on December 31, the end of the accounting period, if the balance in the prepaid insurance account is $8,150 before adjustment, and the unexpired amount per the analysis of policies is $3,450?

A. Debit Insurance Expense, $8,150; credit Prepaid Insurance, $8,150.

B. Debit Prepaid Insurance, $4,700; credit Insurance Expense, $4,700.

C. Debit Insurance Expense, $3,450; credit Prepaid Insurance, $3,450.

D. Debit Insurance Expense, $4,700; credit Prepaid Insurance, $4,700.

E. Debit Cash, $8,150; Credit Prepaid Insurance, $8,150.

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Answers (1)

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Bruce Avila · Answer 1

The proper adjusting entry on December 31 is, D. Debit Insurance Expense, $4,700; credit Prepaid Insurance, $4,700.

Explanation:

The entry of prepaid insurance made earlier was $8,150 and on December 31, it was calculated that the unexpired amount of insurance was $3,450. So first we will calculate the amount of prepaid insurance which has been expired,

$8,150 - $3,450 = $4,700

To record the expired prepaid insurance, we will first debit prepaid insurance expense with $4,700 and then credit prepaid insurance with $4,700.

Prepaid Insurance is an asset and it will decrease by a credit of $4,700, so that the remaining balance in prepaid insurance account is $3,450 which is the remaining unexpired prepaid insurance.