Jenning Co. 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:
$\begin{array} { l r r } & \text { Debit } & \text { Credit } \ \text { Cash } & \$ 12,920 & \ \text { Accounts Receivable } & 9,620 & \ \text { Supplies } & 1,400 & \ \text { Prepaid Insurance } & 3,120 & \ \text { Equipment } & 26,000 & \
\text { Accumulated Depreciation-Equipment } && \$ 10,400 \
\text { Unearned Service Revenue } && 6,500 \
\text { Capital Stock } && 7,190 \
\text { Retained Earnings } && 23,500\
\text { Dividends } & 1,560 & \
\text { Service Revenue } & & 16,510 \
\text { Wages and Salaries Expense } & 7,800 & \
\text { Utilities Expense } & 380 & \
\text { Rent Expense } & 1,300 \
&\$ 64.100& \$ 64.100\
\end{array}$
-Refer to the trial balance of Jenning Co. 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

Jenning Co. 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:
$\begin{array} { l r r } & \text { Debit } & \text { Credit } \ \text { Cash } & \$ 12,920 & \ \text { Accounts Receivable } & 9,620 & \ \text { Supplies } & 1,400 & \ \text { Prepaid Insurance } & 3,120 & \ \text { Equipment } & 26,000 & \  
\text { Accumulated Depreciation-Equipment } && \$ 10,400 \
\text { Unearned Service Revenue } && 6,500 \
\text { Capital Stock } && 7,190 \
\text { Retained Earnings } && 23,500\
\text { Dividends } & 1,560 & \
\text { Service Revenue } & & 16,510 \
\text { Wages and Salaries Expense } & 7,800 & \
\text { Utilities Expense } & 380 & \
\text { Rent Expense } & 1,300 \
&\$ 64.100& \$ 64.100\
\end{array}$
-Refer to the trial balance of Jenning Co. 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 correct adjusting entry for insurance would involve decreasing the Prepaid Insurance account (a credit) and recognizing the expense for one month. Since the payment was for four months, divide the total ($3,120) by 4 to find the monthly expense ($780). Thus, a credit to Prepaid Insurance for $780 is needed to adjust for one month's insurance expense.

Jenning Co -Refer to the Trial Balance of Jenning Co