The company purchased a one-year insurance policy on November 1, 2010 at a cost of $2,400. No...

The company purchased a one-year insurance policy on November 1, 2010 at a cost of $2,400. No adjusting entries for the year had yet been made.

Debit : insurance expense $400

credit : prepaid insurance $400

Why is it become $400?

Solutions

Expert Solution

Insurance premium of $2,400 covers a period of 1 year. Hence, insurance expense for 2 months of November and December will be :

= 2,400 x 2/12

= $400

Hence, insurance expense has been debited by $400 and prepaid insurance has been credited by $400.

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ekkarill92 answered 1 year ago

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