On September 1, 2019, a company paid $8,400 in advance for two years insurance and debited prepaid insurance. The December 31, 2019, adjusting entry should include a debit to:

Question

Quizplus · Accepted Answer

The insurance cost for two years is $8,400, so the monthly cost is $8,400 / 24 = $350. From September 1 to December 31 is 4 months, so the expense for 4 months is $350 * 4 = $1,400. This amount should be recognized as an expense, hence debited to insurance expense.

On September 1, 2019, a Company Paid $8,400 in Advance