Answer:
Step-by-step explanation:
The journal entries are shown below:
July 1: Prepaid insurance A/c Dr $12,500
To Cash A/c $12,500
(Being advance insurance is paid in cash)
July 31: Insurance expense A/c $3,125
To Prepaid insurance $3,125
(Being adjusted entry made)
The calculation of insurance expense is shown below:
= (Insurance ÷ total number of months in a two year ) × number of months
= ($12,500 ÷ 24 months) × 6 months
= $3,125