Kim Company purchased a two-year insurance policy on October 1, 2012, for $6,000. The policy covers its buildings for the next two years. If Kim debited Prepaid Insurance to record the purchase of the policy, the adjusting entry on December 31, 2012 (year-end) would include a credit to

Question

Quizplus · Accepted Answer

The insurance policy covers 24 months, costing $6,000. By December 31, 2012, 3 months have passed. The expense for these 3 months is $750 ($6,000/24 months * 3 months). The adjusting entry would credit Prepaid Insurance by $750 to account for the expense incurred.

Kim Company Purchased a Two-Year Insurance Policy on October 1