Question

At December 31, 2017, before any year-end adjustments, Macarty Company's Prepaid Insurance account had a balance of $2,700. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be:

Answer 1

Answer:

$1,500

Explanation:

When an amount is prepaid for insurance, the entries required are debit prepaid insurance and credit cash. As the insurance expires, debit insurance expense and credit prepaid insurance.

As such, the movement in prepaid insurance is as a result of payments and expiration of insurance ( which is expensed).

As such the expired  insurance is the amount to be expensed.

Answer 2

Answer:

The adjusted balance for Prepaid Insurance is $1,200. Whereas, the expired Insurance that is to be charged to Profit or Loss Statement is $1,500.

Explanation:

The Double Entry to Record the Expired Resource (Insurance) is:

Insurance Expense (Dr.)                   $1,500

             Prepaid Insurance (Cr.)                              $1,500

This implies that the adjusted balance for Prepaid Insurance is 2,700 - 1,500 = $1,200.

Thanks!