Question

On January 1, DogMart Company purchased a two-year liability insurance policy for $22,800 cash. The purchase was recorded to Prepaid Insurance. Prepare the January 31 adjusting entry.

Answer 1

insurance expense 950 debit

prepaid insurance 950 credit

Step-by-step explanation:

When the firm purcahses the insurance it acquired the right in their favor thus, it gets an assets. As times passes the policy expires therefore, the asset of the firm llose value Hence, at the end of the month we have to adjust for the expired portion of the insurance

22,800 is the value of the entire two years:

22,800 / 24 months (two years) = 950 cost per month

we decrease the prepaid insurance and recognize their expense as a result of past of time.