Final answer:
By December 31, 2014, Bambi Insurance Company should recognize revenue for nine months of the one-year policy coverage. The correct adjusting entry is Insurance Revenue 1,800 Debit and Unearned Revenue 1,800 Credit.
Step-by-step explanation:
On April 1, 2014, Bambi Insurance Company sold a one-year insurance policy and collected the full $2,400 premium on that date. This amount was recorded as Unearned Revenue, which is a liability that represents income not yet earned. As nine months passed by December 31, 2014, a portion of this unearned revenue has now been earned.
The policy covers till March 31, 2015, so for nine months out of the twelve months covered by the policy (April to December), the revenue should be recognized. The monthly revenue is calculated by dividing the total premium by the number of months in the coverage period ($2,400 / 12 = $200 per month). Therefore, for nine months, the revenue earned is $200 x 9 = $1,800.
So, the correct adjusting entry needed by Bambi at December 31, 2014, to recognize the revenue that has been earned from April to December is Insurance Revenue 1,800 Debit and Unearned Revenue 1,800 Credit, which is option C in the given question.