The premium on a two-year insurance policy expiring on June 30,2015,was paid in total on July 1,2013.The original payment was debited to the insurance expense account.The appropriate journal entry has been recorded on December 31,2013.The balance in the prepaid asset account on December 31,2013,should be
A) the same as the original payment.
B) higher than if the original payment had been initially debited to an asset account.
C) lower than if the original payment had been initially debited to an asset account.
D) the same as it would have been if the original payment had been initially debited to an asset account.

Question

Quizplus · Accepted Answer

The balance in the prepaid asset account on December 31, 2013, would be the same regardless of whether the original payment was initially debited to an expense account or an asset account. This is because the adjusting entry to record the prepaid portion of the insurance would correct the initial entry, ensuring the correct balance in the prepaid asset account.

The Premium on a Two-Year Insurance Policy Expiring on June