Question

Step 1: Determine what the current account balance equals. Step 2: Determine what the current account balance should equal. Step 3: Record the December 31 adjusting entry to get from step 1 to step 2 Assume no other adjusting entries are made during the year a. Prepaid Insurance. The Prepaid Insurance account has a $6,300 debit balance to start the year. A review of insurance policies shows that $1,700 of unexpired insurance remains at year-end. Prepaid Insurance Step 1: Determine what the current account balance equals. Step 2: Determine what the current account balance should equal. Step 3. Record the December 31, adjusting entry to get from step 1 to step 2 b. Prepaid Insurance. The Prepaid Insurance account has a $7.490 debit balance at the start of the year. A review of insurance policies shows $1.680 of insurance has expired by year-end. Prepaid Insurance Step 1: Determine what the current account balance equals Step 2: Determine what the current account balance should equal Step 3: Record the December 31, adjusting entry to get from step 1 to step 2 c. Prepaid Rent. On September 1 of the current year, the company prepaid $43,200 for two years of rent for facilities being occupied that day. The company debited Prepaid Rent and credited Cash for 543,200. Prex 1 of 8

Answer 1

	a.						Prepaid insurance
	Step 1	Determine what the current account balance equals	6300		beg. Bal.	6300
	Step 2	Determine what the current account balance should	1700				expense	4600
	Step 3	Record the dec 31 adjusting entries			ending bal.	1700
		Insurance expense	4600
		Prepaid expense		4600
	b.
	Step 1	Determine what the current account balance equals	7490				Prepaid insurance
	Step 2	Determine what the current account balance should	5810		beg. Bal.	7490
	Step 3	Record the dec 31 adjusting entries					expense	1680
		Insurance expense	1680		ending bal.	5810
		Prepaid expense		1680
	c.
	Step 1	Determine what the current account balance equals	43200
	Step 2	Determine what the current account balance should	36000	(43200/24*20)
	Step 3	Record the dec 31 adjusting entries
		Insurance expense	7200
		Prepaid expense		7200