Tracy, Inc.

-Refer to the trial balance of Tracy, Inc.
On July 1, Tracy paid four months in advance for insurance.Which of the following is included in the adjusting entry at July 31?

Question

Tracy, Inc.
 
-Refer to the trial balance of Tracy, Inc.
On July 1, Tracy paid four months in advance for insurance.Which of the following is included in the adjusting entry at July 31?

Quizplus · Accepted Answer

The adjusting entry at July 31 would involve recognizing one month's worth of insurance expense. Since Tracy paid for four months in advance, the monthly expense is $780 ($2,340/3). Therefore, the correct entry is a credit to Prepaid Insurance for $780 to reduce the prepaid amount and recognize the expense.

Tracy, Inc. -Refer to the Trial Balance of Tracy, Inc