On October 1,2014,Golde Company paid $12,000 for one year of insurance for the period,October 1,2014 through September 30,2015.Which of the following will be part of the adjusting entry on December 31,2014?

Question

Quizplus · Accepted Answer

The adjusting entry on December 31, 2014, will involve recognizing the portion of insurance expense related to the three months from October 1, 2014, to December 31, 2014. Therefore, the adjusting entry will include a debit to Insurance Expense account for $3,000 ([$12,000 × 3 months] ÷ 12 months). Option A is incorrect because debiting prepaid insurance account would increase the balance of a prepaid asset, which is not yet fully consumed. Option B is incorrect because debiting prepaid insurance account by $9,000 would mean that there would be no insurance expense for the year ended September 30, 2015. Option D is incorrect because debiting Insurance Expense account for $9,000 would mean that the full amount of insurance is already consumed for the entire year ended September 30, 2015, which is not correct as the company is only consuming three months of insurance during the current period.

On October 1,2014,Golde Company Paid $12,000 for One Year of Insurance