A company paid for a 12-month insurance policy on February 1, 2004 for $3,600 and debited...

A company paid for a 12-month insurance policy on February 1, 2004 for $3,600 and debited the Prepaid Insurance account for the cost of the policy. Assuming no previous adjusting entries have been made, what adjusting entry should be made at March 31, 2004 for the interim financial statements to be properly stated?

Expert Solution

The 2 months expired insurance should be charged to insurance expense and prepaid insurance should be credited as part of adjusting entry on March 31^st for the interim financial statements to be properly stated. The amount will be $3,600/12*2 months = $600 should be debited to insurance expense. As per accrual concept the expenses should be accounted for the period for which it is incurred. Hence February and March month insurance expense will be debited.

Adusting entry:

General Journal Debit Credit

Insurance expense $600

Prepaid Insurance $600

ekkarill92 answered 2 years ago

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