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

Question

Quizplus · Accepted Answer

Since the policy is for one year, the total cost of the insurance policy is $8,400. However, Diane's Designs only operated for one month during that year, so the amount of insurance that has been used up or "expired" during that first month is $8,400/12, or $700. This $700 is the amount that would be recorded as an insurance expense during the adjusting process at the end of Diane's first month of operations on March 31.

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