The remaining balance in Prepaid Insurance on December 31, 2021 of $12,600 was for a six-month insurance policy purchased for $16,800 and in effect on July 1, 2020. What is the required adjustment amount on December 31^st? A) $2,800 B) $4,750 C) $4,500 D) $5,000 E) $8,750

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Quizplus · Accepted Answer

The insurance policy cost $16,800 for six months, so the monthly cost is $16,800 / 6 = $2,800. Since the policy was in effect from July 1, 2020, and the balance on December 31, 2021, is for a policy purchased on that date, the entire $12,600 balance would cover the period from July 1, 2020, to December 31, 2021. However, the question asks for the adjustment amount on December 31, which implies how much of the prepaid insurance should be recognized as an expense at that date. Since the policy was fully utilized by December 31, 2021, and the question seems to be asking for the monthly expense amount rather than an adjustment for the period (given the options provided), the correct monthly expense amount of $2,800 is the answer, indicating a possible misunderstanding in the question's phrasing regarding the "required adjustment amount."

The Remaining Balance in Prepaid Insurance on December 31, 2021