What is the proper adjusting entry at December 31, the end of the accounting period, if the balance in the prepaid insurance account is $7,750 before adjustment, and the unexpired amount per analysis of policies is, $3,250?
A) Debit Insurance Expense, $3,250; credit Prepaid Insurance, $3,250.
B) Debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500.
C) Debit Prepaid Insurance, $4,500; credit Insurance Expense, $4,500.
D) Debit Insurance Expense, $7,750; credit Prepaid Insurance, $7,750.
E) Debit Cash, $7,750; Credit Prepaid Insurance, $7,750.

Question

Quizplus · Accepted Answer

The correct adjusting entry is to recognize the insurance expense for the period. The initial prepaid insurance balance is $7,750, and the unexpired amount (still prepaid) at the end of the period is $3,250. The difference, $4,500 ($7,750 - $3,250), represents the insurance expense for the period. Therefore, you debit Insurance Expense to increase it by $4,500 and credit Prepaid Insurance to decrease it by $4,500, reflecting the amount of the prepaid insurance that has been used up during the period.

What Is the Proper Adjusting Entry at December 31, the End