What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $18,500, and unexpired amounts per analysis of policies of $6,000?

Question

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The unexpired amount of prepaid insurance is $6,000, which means $6,000 worth of insurance has not yet been used up. Therefore, the adjusting entry needs to reduce the prepaid insurance account by $6,000 (debit Prepaid Insurance for $6,000) and recognize the expense for that portion of the insurance that has been used up (credit Insurance Expense for $6,000). The difference between the prepaid insurance account balance before adjustment and the unexpired amounts per analysis of policies is $18,500 - $6,000 = $12,500, which means $12,500 worth of insurance has been used up and needs to be recognized as an expense. Therefore, the adjusting entry should also debit Insurance Expense for $12,500 and credit Prepaid Insurance for $12,500. The correct answer is D, Debit Insurance Expense, $12,500; Credit Prepaid Insurance, $12,500.

What Is the Proper Adjusting Entry at June 30, the End