On October 1, McReady Company paid six months' insurance in advance totaling $7800. The policy begins on October 1. An adjusted trial balance prepared on December 31 would include a balance in the Prepaid Insurance account of:

Question

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The insurance covers six months, so each month costs $1300 ($7800/6). By December 31, three months have passed, so $3900 worth of insurance has been used, leaving $3900 in the Prepaid Insurance account.

On October 1, McReady Company Paid Six Months' Insurance in Advance