Question

On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is: A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800. B. Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440. C. Debit Prepaid Insurance, $360; credit Insurance Expense, $360. D. Debit Insurance Expense, $360; credit Prepaid Insurance, $360. E. Debit Insurance Expense, $1,440; credit Prepaid Insurance, $1,440.

Answer 1

Answer:

D. Debit Insurance Expense, $360; credit Prepaid Insurance, $360

Explanation:

The journal entry is shown below:

Insurance expense Dr $360 ($1,800 ÷ 5 years)

      To Prepaid insurance $360

(being insurance expense is recorded)

Here insurance expense is debited as it increased the expense and credited the prepaid insurance as it decreased the assets