Answer:
Debit Insurance expense $665
Credit Prepaid Insurance $665
Being entries to recognize insurance expense incurred between July and December, 2018
Explanation:
When an amount is prepaid for insurance expense to be incurred at a later date, the entries required are
Debit Prepaid insurance account
Credit Cash account
When the expense is incurred, the entries then required will be
Debit Insurance expense
Credit Prepaid Insurance
Since the $2,580 paid was for a two-year insurance policy with coverage beginning on July 1, 2018, at at December 31, 2018, the expense would have been incurred for 6 months out of the 24 months (2 years) paid for. This expense amounts to
= 6/24 × $2,580
= $665
Hence the adjustment required
Debit Insurance expense $665
Credit Prepaid Insurance $665
Being entries to recognize insurance expense incurred between July and December, 2018
