Question

On October 4, Sierra Corporation paid $600 for a one-year fire insurance policy. Coverage began on October 1. Prepaid Insurance shows a balance of $600 in the October 31 trial balance. Insurance of $50 expires each month. What is the adjusting entry?

a. Debit Insurance Expense $50; Credit Prepaid Insurance $50

b. Debit Prepaid Insurance $600; Credit Insurance Expense $600

c. Debit Prepaid Insurance $550; Credit Insurance Expense $550

d. Debit Insurance Expense $600; Credit Prepaid Insurance $600

Answer 1

The adjusting entry for this scenario is to debit Insurance Expense $600 and credit Prepaid Insurance $600.

Step-by-step explanation:

The adjusting entry in this scenario would be option d. Debit Insurance Expense $600; Credit Prepaid Insurance $600. This entry would ensure that the insurance expense for the month of October is properly recognized by debiting Insurance Expense and offsetting it with a credit to Prepaid Insurance, reducing the balance.