unadjusted trial balance (December 31,2008)(Bed Bugs R Us Ltd.): Prepaid insurance $3600

Adjusting entry question: 18 months of preperty insurance was purchased on Sept 1 2007 at a cost of $3600

To create the adjusting entry for the prepaid insurance, you need to calculate the amount of insurance that has expired between September 1, 2007, and December 31, 2008.

First, determine the number of months between September 1, 2007, and December 31, 2008. Counting the months, we have 16 months (January 2008 to April 2009, excluding September 2007).

Next, divide the cost of the insurance by the total number of months it covers to determine the monthly insurance expense. In this case, $3600 divided by 18 months gives us $200 per month.

Finally, multiply the monthly expense by the number of months that have passed since the insurance was purchased (16 months) to calculate the amount of insurance that has expired.

The adjusting entry for the expired prepaid insurance would be as follows:

Debit: Insurance Expense $3200
Credit: Prepaid Insurance $3200

This entry recognizes the insurance expense incurred from September 1, 2007, to December 31, 2008, and reduces the prepaid insurance account accordingly.