Question

X Company prepares annual financial statements. On May 1, 2019, the Company paid $48,000 in advance for a two-year insurance policy. After the adjusting entry on December 31, 2019, what will X Company's 2019 financial statements show?

Prepaid Insurance, $48,000; Insurance expense, $0
Prepaid Insurance, $16,000; Insurance expense, $32,000
Prepaid Insurance, $0; Insurance expense, $48,000
Prepaid Insurance, $32,000; Insurance expense, $16,000
Prepaid Insurance, $6,000;   Insurance expense, $42,000
Prepaid Insurance, $42,000;   Insurance expense, $6,000

Answer 1

Date	Particulars		Debit	Credit
May 1, 2019	Prepaid Insurance                  A/c	Dr	48000
	To Cash A/c			48000
	(Being Prepaid Insurance paid)
Dec 31,2019	Insurance                                    A/c	Dr	16000
	To Prepaid Insurance A/c			16000
	(48000*1/2*8/12)
	(Being Insurance Expense accounted)
Balance Remains at the end of Dec31,2019
	Prepaid Insurance	=	32000
	(48000-16000)
	Insurance Expense	=	16000