Husker Du Supplies Inc.purchased a 12-month insurance policy on March 1, 2022 for $1,800.At March 31, 2022, the adjusting journal entry to record expiration of this asset will include a

Question

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The adjusting entry at March 31, 2022 will involve recognizing the portion of the insurance policy that has expired during the month. Since the policy is for 12 months and was purchased on March 1, 2022, only one month has passed by March 31, 2022. Therefore, the portion of the insurance that has expired during the month is 1/12 of the total cost, or $150 ($1,800/12).

To record this expiration, we need to reduce the balance in Prepaid Insurance (which represents the portion of insurance that has not yet expired) and recognize the expense for the portion that has expired. Therefore, we need to debit Insurance Expense (increasing expenses) and credit Prepaid Insurance (reducing assets) for $150 each.

Option C is the only one that reflects this entry, so it is the correct choice.