Hardwood Supplies Inc.purchased a 12-month insurance policy on March 1, 2011 for ₤ 900.At March 31, 2011, the adjusting journal entry to record expiration of this asset will include a

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The adjusting entry at March 31 will involve recognizing the portion of the prepaid insurance that has expired. Since the policy lasts for 12 months, one month has passed, and therefore 1/12 of the prepaid insurance has expired. This is calculated as ₤ 900/12 = ₤ 75. Thus, the entry will involve debiting Insurance Expense for ₤ 75 and crediting Prepaid Insurance for ₤ 75. Option A is incorrect because it would not reflect the expiration of the asset. Option B is incorrect because it would expense the entire cost of the policy in one month, which is incorrect. Option D is incorrect because it would not reflect the offsetting decrease of the Prepaid Insurance asset.