The Prepaid Insurance account had an unadjusted balance of $8,000 balance on December 31,2014.An analysis of insurance policies shows that $2,000 of unexpired insurance benefits remain at December 31,2014.How would the company record the related adjusting entry at December 31,2104?
A)Debit Prepaid Insurance for $8,000 and credit Cash for $8,000.
B)Debit Prepaid Insurance for $6,000 and credit Cash for $6,000.
C)Debit Insurance Expense for $6,000 and credit Prepaid Insurance for $6,000.
D)Debit Insurance Expense for $2,000 and credit Prepaid Insurance for $2,000.
E)Debit Prepaid Insurance for $2,000,debit Insurance Expense for $6,000,and credit Cash for $8,000.

Question

Quizplus · Accepted Answer

The company needs to adjust for the expired insurance. The unexpired amount is $2,000, so $6,000 has expired ($8,000 - $2,000). Therefore, debit Insurance Expense for $6,000 and credit Prepaid Insurance for $6,000.

The Prepaid Insurance Account Had an Unadjusted Balance of $8,000