Question

The balance in the prepaid insurance account, before adjustment at the end of the year, is $18,290. The year end is March 31. Journalize the March 31 adjusting entry required under each of the following alternatives for determining the amount of the adjustment: (a) the amount of insurance expired during the year is $14,920; (b) the amount of unexpired insurance applicable to future periods is $3,370. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Insurance Expense A/c Dr. $14,920

To Prepaid Insurance $14,920

Step-by-step explanation:

In the cases the information is related to insurance expense for the period and insurance expense paid in advance for upcoming period.

Total balance in prepaid insurance before adjustment = $18,290

Expired during the period = $14,920

(a) Entry for the expired amount shall be:

Insurance Expense A/c Dr. $14,920

To Prepaid Insurance $14,920

As this is the expense amount, it shall no longer be an asset, and shall be charged to expense.

(b) In case 2 the expense for the period = Total prepaid - Unexpired insurance = $18,290 - $3,370 = $14,920

Since the expense amount is same, the entry will be same as in situation (a)

Insurance Expense A/c Dr. $14,920

To Prepaid Insurance $14,920