Avalon Event Planning Services Inc.records prepaid expenses and unearned revenues using the alternative treatments.It makes adjusting entries as needed to bring its books to the full accrual basis once a year at the end of the year.On October 1,it paid $3,600 for insurance for a one-year period.At the end of the year,it will make an adjusting entry that debits Insurance Expense for $900.

Question

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The adjusting entry should debit Insurance Expense for $900 because only three months of the insurance period (October, November, December) have passed by the end of the year, which is 3/12 of the $3,600, equaling $900.