Question

At December 31, 2014, before any year-end adjustments, Janus Company's Prepaid Insurance account had a balance of $2,800. It was determined that $1,200 of the Prepaid Insurance had expired. The adjusted balance for Prepaid Insurance for the year would be:

$1,600. ( T/F)

Answer 1

The adjusted balance of prepaid insurance is $ 1,600 and the statement is true.

Step-by-step explanation:

A prepayment refers to payments made for which the benefit is to be received in the future. Common examples of prepayments are prepaid rent and prepaid insurance.

An adjustment is made at the end of an accounting period to reduce the prepaid balance to reflect the unused portion of benefit.

In the given question, $ 1,200 value of prepaid insurance had expired hence it is reduced from the pre adjusted balance of prepaid insurance.