Answer:
a. Prepaid Insurance. The Prepaid Insurance account has a $4,700 debit balance to start the year. A re- view of insurance policies and payments shows that $900 of unexpired insurance remains at year-end.
Step 1: $4,700 debit balance
Step 2: $900 debit balance
Step 3: $4,700 - $900 = $3,800
Dr Insurance expense 3,800
Cr Prepaid insurance 3,800
b. Prepaid Insurance. The Prepaid Insurance account has a $5,890 debit balance at the start of the year. A review of insurance policies and payments shows $1,040 of insurance has expired by year-end.
Step 1: $5,890 debit balance
Step 2: $4,850 debit balance (= $5,890 - $1,040)
Step 3: $1,040
Dr Insurance expense 1,040
Cr Prepaid insurance 1,040
c. Prepaid Rent. On September 1 of the current year, the company prepaid $24,000 for 2 years of rent for facilities being occupied that day. The company debited Prepaid Rent and credited Cash for $24,000.
Step 1: $24,000 debit balance
Step 2: $20,000 debit balance (= $24,000 - $4,000)
Step 3: ($24,000/24) x 4 = $4,000
Dr Rent expense 4,000
Cr Prepaid rent 4,000
