Question

The prepaid insurance account had a balance of $3,000 at the beginning of the year. The account was debited for $32,500 for premiums on policies purchased during the year. Journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment:a. The amount of unexpired insurance applicable to future periods is $4,800. If an amount box does not require an entry, leave it blank. Insurance Expense_______ Prepaid Insurance_______b. The amount of insurance expired during the year is $30,700. If an amount box does not require an entry, leave it blank. Insurance Expense________ Prepaid Insurance_________

Answer 1

a. please see explanation.

b.

Debit Credit

Insurance expense $30,700

Prepaid insurance $30,700

Step-by-step explanation:

a. No journal entry shall be required in respect of the unexpired insurance amounting to $4,800 which is applicable to the future periods because by recognising expense amounting to $30,700 in accounts in respect of insurance expense, the prepaid insurance will be automatically adjusted to $4,800.

b. The journal entry which shall be recognised in respect of insurance expense is given as follows:

Debit Credit

Insurance expense $30,700

Prepaid insurance $30,700