Homework Answers
Insurance premium paid for 2 years on July 1, 2014 = $7,200
Insurance expense from July 1, 2014 to December 31, 2014 = 7,200 x 6/24
= $1,800
Prepaid insurance on December 31, 2014 = 7,200-1,800
= $5,400
Prepaid insurance on January 1, 2014 = $6,000
For prepaid insurance of $6,000 expiring on June 30, 2014, insurance expense will be debited by $6,000 and prepaid insurance will be credited by $6,000.
For prepaid insurance of $5,400 on December 31, 2014, prepaid insurance should be debited by $5,400 and insurance expense should be credited by $5,400.
Hence, combined net effect of the above is the following Journal entry on December 31, 2014:
| Date | General Journal | Debit | Credit |
| December 31, 2014 | Insurance expense | $600 | |
| Prepaid insurance | $600 | ||
| ( To record insurance expense) |
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