On April 1, 2017, the premium on a one-year insurance policy was purchased for $3,000 cash...
On April 1, 2017, the premium on a one-year insurance policy was purchased for $3,000 cash with the insurance coverage beginning on that date. The books are adjusted only at year-end. Which of the following correctly describes the effect on the financial statements of the December 31, 2016 adjusting entry?
|
A. |
Prepaid insurance will decrease $750. |
|
B. |
Insurance expense will increase $750. |
|
C. |
Insurance expense will increase $2,250. |
|
D. |
Prepaid insurance will increase $2,250. |
Homework Answers
| Correct option is: C. Insurance expense will increase $2,250 | ||
| Workings: | ||
| Prepaid Insurance policy | = | $ 3,000 |
| Insurance expense recorded for the period (till December 31) | = | $3000 X 9/12 |
| = | $ 2,250 | |
| If it is helpful, please rate the answer and if any doubt arises let me know | ||
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