A company shows a $600 balance in prepaid insurance in the Unadjusted Trial Balance columns of the work sheet.The Adjustments columns show expired insurance of $200.This adjusting entry results in:
A)$200 less in net income.
B)$200 more in net income.
C)$200 difference between the debit and credit columns of the unadjusted trial balance.
D)$200 of prepaid insurance.
E)An error in the financial statements.

Question

Quizplus · Accepted Answer

The adjusting entry for expired insurance reduces the balance of prepaid insurance by $200, resulting in a new balance of $400 ($600 - $200). Since prepaid insurance is an asset account, a decrease in its balance will decrease net income, resulting in $200 less in net income.

A Company Shows a $600 Balance in Prepaid Insurance in the Unadjusted