Homework Answers
The correct answer is a) Debit Insurance Expense, $6,588 and credit Prepaid Insurance, $6,588.
Supporting explanations:
When prepaid insurance is purchased, the Prepaid Insurance account which is a current asset account that always has debit balance is debited with $13,176 because its balance increases due to purchase and cash account which is also a current asset that is credited with $13,176 because it decreases due to purchase/payment.
The adjusting entry decreases the Prepaid Insurance account due to expiration of 6 months insurance from July to December so the Prepaid Insurance account is credited with $6,588 ($13,176/12 months * 6 months) and Insurance Expense account is debited with $6,588.
Therefore, the adjusting entry is shown below -
| Adjusting Entry | ||
| Account Titles and Explanation | Debit | Credit |
| Insurance Expense | $6,588 | |
| Prepaid Insurance | $6,588 | |
| (To record the expiration of prepaid insurance for 6 months) | ||
Add Answer to:
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