A company shows an $800 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet.The Adjustments columns show expired insurance of $600.This adjusting entry results in:
A) $600 less net income.
B) $600 more net income.
C) $200 difference between the debit and credit columns of the unadjusted trial balance.
D) $400 in the Income Statement Debit column on the work sheet.
E) $400 in the Balance Sheet Credit column on the work sheet.

Question

Quizplus · Accepted Answer

The adjusting entry for expired insurance reduces the balance of Prepaid Insurance by $600, resulting in a new balance of $200 ($800 - $600). Since prepaid insurance is an asset, a decrease in its balance is a debit adjustment, which will reduce net income. Therefore, the $600 adjustment will result in $600 less net income.

A Company Shows an $800 Balance in Prepaid Insurance in the Unadjusted