On August 1, 2015, Yellow Company paid $6,320 for a three-year insurance policy. On that date, an expense account was charged. In the adjusting entry on December 31, 2015, there would be a

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The insurance policy covers three years, so the annual expense is $2,107 ($6,320 / 3). For five months (August to December), the expense is $527 ($2,107 / 12 * 5). Since the entire amount was initially expensed, the adjusting entry should credit Insurance Expense for the remaining unexpired portion, which is $5,442 ($6,320 - $878).

On August 1, 2015, Yellow Company Paid $6,320 for a Three-Year