Manhattan Park adjusts its books each month and closes its books on December 31 each year. The trial balance at January 31, of the current year, before adjustments, follows:

-Refer to the above data. On August 1, of the previous year, the park purchased a 12-month insurance policy. The necessary adjusting entry at January 31 of the current year, includes which of the following entries? (Hint: The company has adjusted its books on a monthly basis.)
A) A debit to Insurance Expense for $1,050.
B) A credit to Unexpired Insurance for $11,550.
C) A credit to Unexpired Insurance for $1,800.
D) A debit to Unexpired Insurance for $10,800.

Question

Manhattan Park adjusts its books each month and closes its books on December 31 each year. The trial balance at January 31, of the current year, before adjustments, follows:
 
-Refer to the above data. On August 1, of the previous year, the park purchased a 12-month insurance policy. The necessary adjusting entry at January 31 of the current year, includes which of the following entries? (Hint: The company has adjusted its books on a monthly basis.)
A) A debit to Insurance Expense for $1,050. 
B) A credit to Unexpired Insurance for $11,550. 
C) A credit to Unexpired Insurance for $1,800. 
D) A debit to Unexpired Insurance for $10,800.

Quizplus · Accepted Answer

The insurance policy covers 12 months, and by January 31, 6 months have passed. The monthly expense is $1,800 ($21,600/12). Therefore, the adjusting entry would credit Unexpired Insurance for $1,800 for the month of January.

Manhattan Park Adjusts Its Books Each Month and Closes Its