Answer:
Debit insurance expense $5,200
Credit prepaid insurance $5,200
A decrease of $5,200 in the current asset,that will be charged to expense account.
Step-by-step explanation:
An adjusting entry to recognize the expire portion of the insurance must be done at the year end. In this entry, we will recognize the expire portion of the prepaid insurance that was acquired on May 1.
($7,800 / 12 months = $650 x 8 months = $5,200)
The effect on financial statement is that, prepaid insurance which is a current asset will decreased by $5,200 makes the balance of the prepaid insurance decreased to $2,600 at year end.