Question

On its bank reconciliation for the month of December, Pack Corp. noted that it had made an accounting error. It recorded a cash payment on a one-year insurance policy as $2,200 instead of the actual amount of $1,200.  

Question: In Pack Corp.'s month-end journal entry to record this reconciling item, which of the following is true?

Select one:

a. The "Prepaid Insurance" account should be debited for $1,000.

b. The "Prepaid Insurance" account should be credited for $1,000.

c. The "Accounts Receivable" account should be credited for $1,000.

d. The "Accounts Payable" account should be debited for $1,000.

e. The "Accounts Payable" account should be credited for $1,000.

f. The "Accounts Receivable" account should be debited for $1,000.

Answer 1

Correct answer--b. The "Prepaid Insurance" account should be credited for $1,000.

.

Prepaid insurance account is debited with $2200 instead of $1200 which is $1000 higher than the actual amount.

Prepaid insurance is $1000 debited in excess so in order to correct this all we need to do is credit prepaid insurance with $1000 so that its balance becomes $1200.

($2200Dr-$1000 Cr) = $1200Dr