Question

For each separate case below, follow the three-step process for adjusting the prepaid asset account at Decemb 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 $5,100 debit balance to start the year. A review of insurance policies shows that $1,100 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 $6,290 debit balance at the start of the year. A review of insurance policies shows $1,200 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.

Answer 1

a
			Prepaid Insurance
Step 1: Current account balance equals	5100	Debit	5100
				4000
Step 2: Current account balance should equal	1100	Debit	1100
Step 3:
Insurance expense	4000
Prepaid Insurance		4000
b
			Prepaid Insurance
Step 1: Current account balance equals	6290	Debit	6290
				1200
Step 2: Current account balance should equal	5090	Debit	5090
Step 3:
Insurance expense	1200
Prepaid Insurance		1200
c
			Prepaid Rent
Step 1: Current account balance equals	28800	Debit	28800
				4800
Step 2: Current account balance should equal	24000	Debit	24000
Step 3:
Rent expense	4800
Prepaid Rent		4800

Workings:
Rent expense for 4 months	4800	=28800/24*4