On January 1, a company purchased a five-year insurance policy for $2,200 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

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Business

Maci Howe

21 August, 08:21

On January 1, a company purchased a five-year insurance policy for $2,200 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

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Patience Vincent · Answer 1

Debit Insurance Expense 440

Credit Prepaid Insurace 440

Explanation:

Since on January 1, the company purchased a five year insurance policy for $2,200 that means we have to divide the insurance policy amount of $2,200 by the numbers of year which is 5 years.

Hence:

$2,200/5 years

=440

Therefore the adjusting entry at the end of the first year is:

Debit Insurance Expense 440

Credit Prepaid Insurace 440