Question

For each separate case below, follow the three-step process for adjusting the prepaid asset account at December 31 Step 1: Determine what the current account balance equals. Step 2: Determine what the current account balance should equal. Step 3: Record the December 31 adjusting entry to get from step 1 to step 2 Assume no other adjusting entries are made during the year

Answer 1

Answers

• Requirement ‘a’

Step 1	$5,100	Debit
Step 2	$1,100	Debit
Step 3	Accounts title	Debit	Credit
	Insurance expense [5100 - 1100]	$4,000
	Prepaid Insurance		$4,000

• Requirement ‘b’

Step 1	$6,290	Debit
Step 2	$5,090	Debit [6290 - 1100 expired]
Step 3	Accounts title	Debit	Credit
	Insurance expense	$1,200
	Prepaid Insurance		$1,200

• Requirement ‘c’

--$ 28800 is for 24 months.
--Period expired = 4 months [from 1 Sept to 31 Dec = 4 months]
--Rent expense = rent expired = 28800 x 4months/24months = $ 4,800

Step 1	$28,800	Debit
Step 2	$24,000	Debit [28800 – 4800]
Step 3	Accounts title	Debit	Credit
	Rent expense [28800 - 24000]	$4,800
	Prepaid Rent		$4,800