Question

Harrod Company paid $4,800 for a 4-month insurance premium in advance on November 1, with coverage beginning on that date. The balance in the prepaid insurance account before adjustment at the end of the year is $4,800 and no adjustments had been made previously. The adjusting entry required on December 31 is:

Debit Prepaid Insurance, $2,400; credit Insurance Expense, $2,400.

Debit Cash, $4,800; Credit Prepaid Insurance, $4,800.

Debit Insurance Expense, $1,200; credit Prepaid Insurance, $1,200.

Debit Prepaid Insurance, $1,200; credit Insurance Expense, $1,200.

Debit Insurance Expense, $2,400; credit Prepaid Insurance, $2,400.

Answer 1

Answer:

Debit Insurance Expense, $2,400; credit Prepaid Insurance, $2,400.

Explanation:

The journal entry is given below

Insurance expense A/c Dr $2,400

        To Prepaid Insurance $2,400

(Being insurance expense is recorded)

The computation is shown below:

= Insurance premium ÷ number of months × required months

= $4,800 ÷ 4 months × 2 months

= $2,400 months

The 2 months is taken from November 1 to December 31