Question

X Company prepares annual financial statements. On September 1, 2017, X Company paid $63,000 in advance for a two-year insurance policy. After the adjusting entry on December 31, 2017, what will X Company's 2017 financial statements show? Prepaid Insurance, $52,500; Insurance expense, $10,500 Prepaid Insurance, $63,000; Insurance expense, $0 Prepaid Insurance, $15,750; Insurance expense, $47,250 Prepaid Insurance, $47,250; Insurance expense, $15,750 Prepaid Insurance, $0; Insurance expense, $63,000 Prepaid Insurance, $10,500; Insurance expense, $52,500

Answer 1

Correct answer--- Prepaid Insurance, $52,500; Insurance expense, $10,500

Working

Following adjusting entry will be passed on dec 31

Date	Accounts and explanations	Debit	Credit
Dec 31.	Insurance Expense	$     10,500.00*
	Prepaid Insurance		$   10,500.00
	(To record rent expense)

*$63000/24 x 4

               

Statement of accounts balances
	Insurance Expense	Prepaid Insurance
Balance on September 1	$                    -	$   63,000.00
Adjustment on December 31	$    10,500.00	$ (10,500.00)
Ending balance on December 31	$    10,500.00	$   52,500.00