On October 1,McReady Company paid six months' insurance in advance totaling $9,000.An adjusted trial balance prepared on December 31 would include a balance in the Prepaid Insurance account of:

Question

Quizplus · Accepted Answer

Prepaid insurance is considered an asset account because the payment was made in advance for future insurance coverage. The adjusting entry required at the end of the accounting period is to recognize the portion of the prepaid insurance that has been used or expired during the period. Since the payment was made for six months, and the period from October 1 to December 31 covers three months, the amount of prepaid insurance that has been used is $4,500 (half of $9,000). Therefore, the adjusted trial balance on December 31 would include a balance of $4,500 in the Prepaid Insurance account.

On October 1,McReady Company Paid Six Months' Insurance in Advance