On April 1, 2014, Miller Company paid $6,280 for a two-year insurance policy. On that date, the company charged an asset account. The correct December 31, 2014, adjusting entry would be

Question

Quizplus · Accepted Answer

The adjusting entry for December 31, 2014, should recognize the portion of the insurance policy that has been used up, or expired, during the year. Since the policy was for two years and one year has passed, only half of the policy's value should be expensed. Therefore, the correct entry would be to debit Insurance Expense for $2,355 (half of $6,280) and credit Prepaid Insurance for the same amount. Option B is the only choice that reflects this.

On April 1, 2014, Miller Company Paid $6,280 for a Two-Year