Safety First Supply Company purchased a 2-year insurance policy for $2,500.What would the adjusting entry be at the end of the first year?

Question

Quizplus · Accepted Answer

The adjusting entry at the end of the first year would be to debit Insurance Expense for half of the policy amount ($2,500/2 = $1,250) and credit Prepaid Insurance for the same amount. This is because the policy has now been partially used up and no longer represents a full year's worth of coverage. Therefore, option C is the correct answer as it reflects this adjustment. Option A would be the adjusting entry at the end of the second year, after the policy has expired fully. Option B and D are incorrect as they do not reflect the fact that the policy is prepaid and needs to be adjusted for the first year's usage.

Safety First Supply Company Purchased a 2-Year Insurance Policy for $2,500.What