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. a. Prepaid Insurance. The Prepaid Insurance account has a $4,800 debit balance to start the year. A review of insurance policies shows that $950 of unexpired insurance remains at 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 b. Prepaid Insurance. The Prepaid Insurance account has a $5,990 debit balance at the start of the year. A review of insurance policies shows $1,080 of insurance has expired by year-end. Prepaid insurance Step 1: Determine what the current account balance equals

Answer 1

a
			Prepaid Insurance
Step 1: Current accounts balance equals	4800	Debit	4800
				3850
Step 2: Current account balance should equal	950	Debit	950
Step 3
Insurance expense	3850
Prepaid insurance		3850
b
			Prepaid Insurance
Step 1: Current accounts balance equals	5990	Debit	5990
				1080
Step 2: Current account balance should equal	4910	Debit	4910
Step 3
Insurance expense	1080
Prepaid insurance		1080
c
			Prepaid Rent
Step 1: Current accounts balance equals	25200	Debit	25200
				4200
Step 2: Current account balance should equal	21000	Debit	21000
Step 3
Rent expense	4200
Prepaid Rent		4200

Workings:

Rent expense = 25200*4/24= $4200