The balance in the Prepaid Insurance account before adjustment at the end of the year is $720, which represents twelve months' insurance purchased on December 1. The adjusting entry required for the month of December, on December 31, the end of the fiscal year, is
A) debit Insurance Expense, $60; credit Prepaid Insurance, $60.
B) debit Insurance Expense, $660; credit Prepaid Insurance, $660.
C) debit Prepaid Insurance, $60; credit Insurance Expense, $60.
D) debit Prepaid Insurance, $720; credit Insurance Expense, $720.
E) debit Insurance Expense, $60; credit Insurance Payable, $60.

Question

Quizplus · Accepted Answer

The correct adjusting entry is to debit Insurance Expense for $60 and credit Prepaid Insurance for $60, reflecting the expense of one month's insurance ($720/12 months = $60 per month).

The Balance in the Prepaid Insurance Account Before Adjustment at the End