Question

On December 31, but before any year-end adjustments, McCarthy Company's Prepaid Insurance account had a balance of $2,700. It was determined that $1,500 of the Prepaid Insurance had expired. The Insurance Expense for the year would be:

A) $1,200.
B) $900.
C) $1,500.
D) $1,900.
E) $2,700.

Answer 1

C) $1,500.

Step-by-step explanation:

The computation of the insurance expense is shown below:

The insurance expense would be equal to the expired amount of the prepaid insurance i.e $1,500

The adjusting entry is as follows

Insurance expense A/c Dr $1,500

To Prepaid Insurance $1,500

(Being insurance expense is recorded)

Therefore, the balance of the prepaid insurance is ignored.