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 an expense (insurance expense) is being recognized for $200, this will lower the net income by $200. Choice A reflects this correctly.

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