On October 1,2016,Jay Walker Company purchased a one-year insurance policy for $660.The correct adjusting entry on December 31,2016,is
A) debit Insurance Expense $660;credit Prepaid Insurance $660
B) debit Insurance Expense $495;credit Prepaid Insurance $495
C) debit Prepaid Insurance $55;credit Insurance Expense $55
D) debit Insurance Expense $165;credit Prepaid Insurance $165

Question

Quizplus · Accepted Answer

The insurance policy was purchased on October 1st, which means that on December 31st (the end of the year), there are still 3 months left (October, November, December) that have not been used. Therefore, the amount that should be expensed (debit Insurance Expense) is $165 ($660/12 months x 3 months remaining). The remaining amount of $495 should be credited to Prepaid Insurance ($660 - $165 = $495).

On October 1,2016,Jay Walker Company Purchased a One-Year Insurance Policy