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 decrease in net income.
B) $200 increase 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 decreases the Prepaid Insurance account by $200 and increases the Insurance Expense account by $200. This will result in a decrease in net income by $200.

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