The insurance policy covers four years and was purchased by Sneetch on 1/1/10. The adjusting entry on December 31 would include

Question

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The adjusting entry on December 31 would include a credit to prepaid insurance for $1,200 because one year of the four-year policy has expired, and the cost of the insurance for one year needs to be recognized as an expense. If the total policy cost is $4,800 ($1,200 per year), then $1,200 should be credited from prepaid insurance to reflect the expense incurred.

The Insurance Policy Covers Four Years and Was Purchased by Sneetch