Question

Two Company purchased a one-year insurance policy on July 1, 2018 for $2,400. The company debited the entire amount to insurance expense. The adjusting entry on December 31, 2018 would include

A credit to prepaid insurance for $2,400

A debit to insurance expense for $1,200

No entry

A credit to insurance expense for $1,200

Answer 1

Answer is.....a credit to insurance expense for $1,200

This is because the company had debited $2,400 to interest expense but actual expenses of that year is of 6 months from July 1, 2018 to December 31, 2018.

So the adjusting entry will be a debit to prepaid insurance for 1,200 and credit to insurance expense for 1,200.

(2,400 x 6/12 = 1,200)