On December 31,2015 Carmack Company's Prepaid Insurance account had a balance before adjustment of $6,000.The insurance was purchased on July 1 of the same year for one year of insurance coverage.The adjusting entry needed on December 31 is:

Question

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The adjusting entry needed on December 31 is to record the amount of insurance expense that has been used up or "expired" since the purchase of the insurance. Since half of the insurance period has passed between July 1 and December 31, only half of the prepaid insurance amount remains as an asset on December 31. Therefore, the correct entry is to debit Insurance Expense for $3,000 (half of the original $6,000 amount) and credit Prepaid Insurance for $3,000.

On December 31,2015 Carmack Company's Prepaid Insurance Account Had a Balance