Diane's Designs purchased a one-year liability insurance policy on March 1 of this year for $8,400 and recorded it as a prepaid expense.Which of the following amounts would be recorded for insurance expense during the adjusting process at the end of Diane's first month of operations on March 31?

Question

Quizplus · Accepted Answer

The adjusting entry for the insurance expense at the end of the first month would be:

Insurance Expense = (Total cost of insurance policy) x (Number of months expired) / (Total number of months of policy)

So for Diane's Designs, this would be:

Insurance Expense = ($8,400) x (1 month) / (12 months) = $700

Therefore, the correct answer is C) $700.

Diane's Designs Purchased a One-Year Liability Insurance Policy on March