On Oct 1,2016,a firm purchased a 1-year insurance policy for $2,400 and paid the full premium in advance.The adjustment needed on December 31,2016,to report the amount of insurance that had expired,would be:

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The adjustment needed on December 31, 2016, would be to report the amount of insurance that had expired. As of December 31, 2016, three months of the policy have expired (October, November, December). Therefore, the amount of insurance expense that should be recognized for the year ending December 31, 2016, is $600 ($2,400/12 months x 3 months). To record this adjustment, we would debit the Insurance Expense account for $600 and credit the Prepaid Insurance account for $600, reducing the prepaid amount by the amount that has expired. Therefore, the correct choice is B.

On Oct 1,2016,a Firm Purchased a 1-Year Insurance Policy for $2,400