the balance in the prepaid insurance account, before adjustment at the end of the year, is $11,500. journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment (a) the amount of insurance expired during the year is $8,750 (b) the amount of inexpired insurance applicable to future periods is $2,750
a. Dr Insurance expense 8750
Cr Prepaid insurance 8750
b. same as above
To journalize the adjusting entry for the prepaid insurance account, we need to determine the amount of the adjustment based on the given alternatives.
(a) The amount of insurance expired during the year is $8,750:
1. Debit the insurance expense account by $8,750 to recognize the expense.
2. Credit the prepaid insurance account by $8,750 to reduce the balance.
The journal entry would be:
Insurance Expense $8,750
Prepaid Insurance $8,750
(b) The amount of inexpired insurance applicable to future periods is $2,750:
1. Debit the prepaid insurance account by $2,750 to reduce the balance for the future period.
2. Credit the insurance expense account by $2,750 to recognize the unused portion as an expense.
The journal entry would be:
Prepaid Insurance $2,750
Insurance Expense $2,750
Remember, when determining the adjusting entry, we debit or credit the respective accounts based on whether we are recognizing an expense or reducing the prepaid asset.