On November 1,Year 1,Shumate Company paid $1,200 in advance for an insurance policy that covered the company for six months.Which of the following will be included in the adjustment required on December 31,Year 1?

Question

Quizplus · Accepted Answer

The monthly insurance cost is $200 ($1,200 ÷ 6 months).By December 31,Year 1 the company had used the insurance coverage for two months.The Insurance Expense account must be increased with a debit for $400 ($200 × 2)and the Prepaid Insurance account must be decreased with a credit for the same amount.

On November 1,Year 1,Shumate Company Paid $1,200 in Advance for an Insurance