On January 1,2014,Everest Company paid $4,000 for insurance that covers the period,February 1,2014 through January 31,2015.Which of the following journal entries is prepared on January 1,2014?

Question

Quizplus · Accepted Answer

When Everest Company paid $4,000 for insurance that would cover the period between February 1, 2014, through January 31, 2015, the amount paid is not recognized as an expense on January 1, 2014. Instead, it is recorded as an asset, prepaid insurance. Hence, the journal entry prepared on January 1, 2014, would recognize the $4,000 payment as a debit to prepaid insurance and a credit to cash, making choice B the correct answer.

On January 1,2014,Everest Company Paid $4,000 for Insurance That Covers