Sail \& Surf Cruises purchased a five-year insurance policy for its ships on April 1,2011 for $ \$ 100,000 $. Assuming that April 1 is the effective date of the policy, the adjusting entry on December 31,2011 is

Question

Quizplus · Accepted Answer

The adjusting entry on December 31, 2011 would be to recognize the portion of the insurance policy that has been used up during that year (9 months) as an expense. This is calculated as (\$100,000/5 years) x (9/12) = \$15,000. Therefore, the entry would be to debit Insurance Expense for \$15,000 and credit Prepaid Insurance for the same amount. Choice B reflects this entry.

Sail \& Surf Cruises Purchased a Five-Year Insurance Policy for Its