On August 1, 2013, Yellow Company paid $6,320 for a three-year insurance policy. On that date, an expense account was charged. In the adjusting entry on December 31, 2013, there would be a

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The insurance policy covers three years, so the annual expense is $6,320 / 3 = $2,107. By December 31, 2013, five months of insurance have been used, so the expense should be $2,107 / 12 * 5 = $878. The initial entry charged the full amount to expense, so the adjusting entry should credit Insurance Expense for the unused portion: $6,320 - $878 = $5,442.

On August 1, 2013, Yellow Company Paid $6,320 for a Three-Year