Answer:
Journal Entry will be as follow
DR. Insurance Expense $5,625
CR. Prepaid Insurance $5,625
Explanation:
On 31 July 2018 the advance Insurance has been paid and the prepaid insurance account has been debited and cash is credited. As a result the prepaid insurance is recorded as an asset. On December 31, 2018 five month has been passed, so according to accrual concept the expense should be recorded for this period. The adjusting entry requires an expense account of Insurance to debited and prepaid insurance account should be credited to transfer the accrued insurance expense from asset account to an expense account.
Total Insurance paid = $27,000 for two years
Insurance per month = $27,000 / 12 = $1,125
Insurance expense for five months of 2018 = $1,125 x 5 = $5,625
