In: Accounting
Smokey Company purchases a one-year insurance policy on July 1 for $4,380. The adjusting entry on December 31 is
a.debit Insurance Expense, $2,190; credit Prepaid Insurance, $2,190
b.debit Insurance Expense, $1,825; credit Prepaid Insurance, $1,825
c.debit Insurance Expense, $2,555; credit Prepaid Insurance, $2,555
d.debit Prepaid Insurance, $2,190; credit Cash, $2,190
Insurance expense from July to December (6 months)
= $4,380 X 6/12
= $2,190
Debit insurance expense and credit prepaid insurance with $2,190.
Option a.debit Insurance Expense, $2,190; credit Prepaid Insurance, $2,190