Question

Wilson company paid $4,800 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 $4,800 and no adjustments had been made previously. the adjusting entry required on december 31 is:

Answer 1

The adjusting entry required on December 31 is:

Debit Insurance Expense = $2,400 and credit Prepaid Insurance = $2,400.
this is how we calculate this;
Amount paid = $4,800
For months of insurance = 4
from 1st November to 31st December 2 months passed, So;
$4,800 x 2/4 = $4,800/ 2 = $2,400.