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30 January, 23:21

A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in: Select one: a. $200 decrease in net income. b. $200 increase in net income. c. $200 difference between the debit and credit columns of the Unadjusted Trial Balance. d. $200 of prepaid insurance. e. An error in the financial statements.

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  1. 31 January, 01:31
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    a. $200 decrease in net income.

    Explanation:

    When insurance is paid in advance, the entries required are;

    Debit Prepaid Insurance

    Credit Cash account

    As time elapses and the insurance expires,

    Debit Insurance expense

    Credit Prepaid Insurance

    Given that the Adjustments columns show expired insurance of $200, this will be recorded as an expense and will thus decrease the net income.
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