Question

For each separate case below. follow the three-step process for adjusting the prepaid asset account at December 31 Step t 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 Prepaid Insurance. The Prepaid Insurance account has a 55,700 debit balance to start the year. A review of Insurance policies shows that $1,400 of unexpired insurance remains at year-end. Prepaid Insurance Step 1: Determine what the current account balance equals. Step z Determine what the current account balance should equal Step 3: Record the December 31, adjusting entry to get from step 1 to step 2 b. Prepaid Insurance. The Prepaid Insurance account has a $6,890 debit balance at the start of the year. A review of Insurance policies shows $1,440 of insurance has expired by year-end. Prepaid Insurance 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 c. Prepaid Rent. On September 1 of the current year, the company prepaid $36.000 for two years of rent for facilities being occupied that day. The company debited Prepaid Rent and credited Cash for $36.000 Prepaid Rent Step 1: Determine what the current account balance equals 1 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

Answer 1

Solution: 5700 Debit 1400 Debit Prepaid insurance 5700 4300 1400 Part a: Step 1: current account balance Step 2: current account balance should equal step 3: Adjusting entry Account title Insurance expense Prepaid Insurance (5700-1400) Debit Credit 4300 4300 6890 Debit 5450 Debit Part b: Step 1: current account balance Step 2: current account balance should equal=6890-1440 step 3: Adjusting entry Account title Insurance expense Prepaid Insurance Pre paid insurance 6890 1440 5450 Debit Credit 1440 1440 Prepaid rent 36000 Part c: Step 1: Step 2: step 3: 36000 Debit 30000 Debit 6000 30000 current account balance current account balance should equal=36000* 20/24 Adjusting entry Account title Rent expense Prepaid rent (36000*4/24) Debit Credit 6000 6000