Scully Corporation purchased a three-year insurance policy on November 1 for $3,600. Assuming that Scully Corporation recorded the original transaction by debiting Prepaid Insurance, the adjusting entry on December 31 will include a

Question

Quizplus · Accepted Answer

The adjusting entry on December 31 will include a debit to Insurance Expense for the amount of insurance used during the month (1/12 of the total annual premium, which is $300). This will decrease the balance in Prepaid Insurance. Therefore, options B and C are both incorrect. Option D is also incorrect, as there is no cash transaction involved in the adjusting entry for prepaid insurance.

Scully Corporation Purchased a Three-Year Insurance Policy on November 1