Magna Company paid $2,400 for a 6-month liability insurance policy. At the time of payment, this transaction should be recorded as

Question

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The $2,400 payment is for a 6-month liability insurance policy, meaning that it covers future periods. Therefore, it should be recorded as an asset (Prepaid Insurance) initially and then expensed over the 6-month period as Insurance Expense through adjusting entries. Option B correctly reflects this concept. Option D is incorrect because it only records one month of insurance expense instead of the entire 6-month period. Options A and C are incorrect because they do not consider the concept of prepaying for an expense.

Magna Company Paid $2,400 for a 6-Month Liability Insurance Policy