Question

On September 1, 2019, Jay Walker Company purchased a one-year insurance policy for $1,320. The correct adjusting entry on December 31, 2019, is:

Multiple Choice

• debit Insurance Expense $440; credit Prepaid Insurance $440

• debit Insurance Expense $990; credit Prepaid Insurance $990

• debit Prepaid Insurance $110; credit Insurance Expense $110

• debit Prepaid Insurance $1,320; credit Insurance Expense $1,320

Answer 1

Answer is debit Insurance Expense $440; credit Prepaid Insurance $440

Insurance expense =$1320/12 months * 4 months =$440

Answer 2

Calculation:

1. Total Insurance Cost: $1,320 for 12 months.

2. Monthly Insurance Expense: $1,320÷12=\ast \ast$110 per month .

3. Covered Period (Sep 1 - Dec 31): 4 months.

4. Expense for 4 Months: 4 × $110=\ast \ast$440 .

5. 
   

Adjusting Entry:

• Debit Insurance Expense $440 (recognize the expense for 4 months).

• Credit Prepaid Insurance $440 (reduce the prepaid asset by the used amount).

Answer:

• debit Insurance Expense $440;creditPrepaidInsurance$

The remaining prepaid insurance after adjustment: $1,320-$440 = $880 (for the next 8 months)