Question

Harrod Company paid $5,800 for a 4-month insurance premium in advance on November 1, with coverage beginning on that date. The balance in the prepaid insurance account before adjustment at the end of the year is $5,800, and no adjustments had been made previously. The adjusting entry required on December 31 is:

Answer 1

Debit Insurance Expense $2,900; Credit Prepaid Insurance $2,900

Step-by-step explanation:

Total Prepaid Insurance= $5,800

Monthly Insurance=Total Prepaid Insurance / 4 = $1,450

Insurance expenses for 2 month (November and December)= $1,450 * 2 = $2,900

There is no cash transaction in this adjusting entry

When insurance expenses increase= Debit

When decrease in prepaid expenses= Credit

Debit Insurance Expense $2,900; Credit Prepaid Insurance $2,900

Answer 2

Prepaid Insurance = credit = $2900.

Prepaid Insurance = debit = $2900

Step-by-step explanation:

So, we are given the following data or parameters or information which is going to assist us in solving this particular Question or problem;

=> The amount paid for a 4-month insurance premium in advance on November 1, with coverage beginning on that date = $5,800.

=> "The balance in the prepaid insurance account before adjustment at the end of the year =$5,800, and no adjustments had been made previously.

So, we are asked to determine the adjusting entry required on December 31.

The adjusting entry required on December 31;

Prepaid Insurance = credit = 5800 × 2/4= $2900.

Prepaid Insurance = debit = $2900.