On July 1 of the current year, Uber paid a premium in advance on a one-year...

On July 1 of the current year, Uber paid a premium in advance on a one-year insurance policy on equipment in the amount of $72,000. At the time, the full amount was recorded as prepaid insurance. On December 31, Uber would be required to record an adjusting entry that would include which of the following:

A. $6,000 Increase to insurance expense

B . $6,000 decrease to prepaid insurance

C. $12,000 increase to insurance expense

D. $12,000 decrease to prepaid insurance

Expert Solution

Insurance amount paid = $ 72000 for 12 months on Jul 1
No of months for which insurance expired till 31 Dec
= From 1 Jul to 31 Dec
= 6 months
Insurance expired = $ 72000 x 6 months / 12 months
= $ 36,000
Hence,
Insurance expense will INCREASE by $ 36,000, and
Prepaid Insurance will DECREASE by $ 36,000
Note: None of the options matches with the above correct answer.

ekkarill92 answered 2 years ago

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