Answer:
A debit to an expense and a credit to a prepaid expense for $2,225
Explanation:
As plum company paid $8,900 for 2 years contract on July 1, the number of months expired at the end of the December 31 was 6 months (July to December).
When the company paid for that prepaid expense for 2 years (24 months), it recorded -
July 1 Prepaid expense (Debit) $8,900
Cash (Credit) $8,900
As the accounting period ended on December 31, the expense expired for six months
Therefore, 6 months expense = $8,900 ÷ (6 × 24)
6 months expense = $2,225
Whenever the advance expense expired, the expense becomes debit and the asset (Prepaid expanse) will become a credit.
Debit expense $2,225
credit prepaid expense $2,225
Therefore, option A is correct.
