Tracy, Inc.
Tracy, Inc. adjusts its books each month but closes its books at the end of the year. The trial balance at July 31 before adjustments is as follows:

-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.
Tracy, Inc. adjusts its books each month but closes its books at the end of the year. The trial balance at July 31 before adjustments is as follows:
 
-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 decreasing Prepaid Insurance by the amount of insurance that has expired in one month. If the total prepaid amount was for four months, then one month's worth of insurance would be $780 ($2,340/3 remaining months), which should be recognized as an expense, thus decreasing Prepaid Insurance by $780.

Tracy, Inc. Tracy, Inc. Adjusts Its Books Each Month but Closes Its