Question

Dude Duds, Inc. is a clothing retailer specializing in affordable family apparel. Prepare journal entries and related adjusting entries (if any) for the transaction below for the first quarter ending March 31 of the current year. Obtained and paid building and liability insurance coverage from Northwest Insurance Company. The two-year policy began on Feb 1 and has a premium of $54,000. Select one: O a. No journal entry entry or adjusting entry required O b. Dr. Insurance expense $4,500; Cr. Prepaid insurance $4,500 c. Dr. Prepaid insurance $54,000; Dr. Insurance expense $4,500; Cr. Prepaid insurance $4,500; Cr. Cash $54,000 d. Dr. Prepaid insurance $4,500; Dr. Cash $54,000; Cr. Prepaid insurance $54,000; Cr. Insurance expense $4,500 O e. Dr. Prepaid insurance $54,000; Dr. Insurance expense $6,750; Cr. Prepaid insurance $6,750; Cr. Cash $54,000 O f. Dr. Prepaid insurance $4,500; Cr. Insurance expense $4,500 g. Dr. Prepaid insurance $6,750; Dr. Cash $54,000; Cr. Prepaid insurance $54,000; Cr. Insurance expense $6,750

Answer 1

Answer is --> Option C (please read note given below the reasoning why C instead of B is correct) Explanation : Date Account titles and explanations Debit ($) Credit ($) Explanation 01-Feb At the time of insurance 54000 Prepaid Insurance A/C Cash A/C (Being insurance charged) 54000 4500 31-Mar Adjusting entry at quarter end Insurance Expense A/C Prepaid Insurance A/C (being insurance charged for the quarter) 54000/24 * 2 months 4500 Please Note: 1 Both entries in option b and care correct according to the transaction perspective, but since in question it has been given that both journal entry and adjusting entry has to made so if we combine the both above entry we find out that Option C is correct.

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