Question

Murphy, Inc. prepaid $ 8,400 on October​ 1, 2018 for a one - year insurance premium. Coverage begins October 1. On January​ 1, 2019​ (after December 31​ adjustments), the Prepaid Insurance account will have a debit balance of​ ________. (Round any intermediate calculations to two decimal​ places, and your final answer to the nearest whole​ number.)

Answer 1

$6300

Step-by-step explanation:

A prepaid insurance is a part of an insurance premium payment that is made in advance before the expiration on the balance sheet. also the unexpired amount of the prepaid insurance is recorded under the head current account found on the asset side of the balance sheet.

Amount of premium paid = $8400

validity of premium = 12 months

date of premium payment = October 1 2018

balance on prepaid insurance accounts = ( 8400 / 12 ) * 9

= $6300

9 = the remaining months on the prepaid premium

Answer 2

The insurance prepaid account would have a debit balance of $6,300

Step-by-step explanation:

The initial amount paid is recorded thus:

Dr Insurance prepaid $8,400

Cr Cash $8,400

The $8400 insurance prepaid for 12 months translates to an insurance expense of $700 per month, however from October 1 to the end of the year means that three months of insurance expense must recorded in the year.

Three months insurance expense=$700*3

=$2100

The recording of this is shown as :

Dr Insurance expense $2,100

Cr Insurance prepaid $2100

The entries would leave a balance of $6,300 debit in the prepaid insurance account($8400-$2100)