Asked by Danielle Thompson on Jul 17, 2024
Verified
Which of the following is the proper adjusting entry, based on a prepaid insurance account balance before adjustment of $14,000 and unexpired insurance of $3,000, for the fiscal year ending on April 30?
A) debit Insurance Expense, $3,000; credit Prepaid Insurance, $3,000
B) debit Insurance Expense, $14,000; credit Prepaid Insurance, $14,000
C) debit Prepaid Insurance, $11,000; credit Insurance Expense, $11,000
D) debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000
Prepaid Insurance
The portion of insurance premiums that have been paid in advance and is recorded as an asset until utilized.
Insurance Expense
Costs incurred by a business or individual for insurance coverage, including health, property, and liability insurance.
- Keep and update records of expenses paid in advance.
Verified Answer
SM
Sophia MarieJul 19, 2024
Final Answer :
D
Explanation :
The adjusting entry should reduce the Prepaid Insurance account (asset) and increase the Insurance Expense account (expense). The amount to be adjusted is the difference between the balance of the Prepaid Insurance account before adjustment and the unexpired insurance as of the end of the fiscal year. Therefore, the proper adjusting entry is to debit Insurance Expense for $11,000 (the difference between $14,000 and $3,000) and credit Prepaid Insurance for the same amount. Choice D is the only option that correctly reflects this adjustment.
Learning Objectives
- Keep and update records of expenses paid in advance.
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