On January 2, 2022, Superchunk purchased a general liability insurance policy for $2,700 for coverage for the calendar year.The entire $2,700 was charged to Insurance Expense on January 2, 2022.If the firm prepares monthly financial statements, the proper adjusting entry on January 31, 2022, will be:

Question

Quizplus · Accepted Answer

Option B is the correct choice as it reflects the use of one month of the insurance policy during January. As Superchunk is preparing monthly financial statements, it needs to reflect the amount of insurance used during the month to accurately reflect its financial position. Therefore, the adjusting entry for January 31, 2022, would be to debit Insurance Expense for one month's worth of insurance, which is $225 ($2,700 ÷ 12 months), and credit Prepaid Insurance for the same amount. This will reflect the correct insurance expense for January and will reduce the prepaid insurance asset on the balance sheet by $225.

On January 2, 2022, Superchunk Purchased a General Liability Insurance