Question

Which of the following is the proper adjusting entry, based on a prepaid insurance account balance before adjustment of $14,000 and unexpired insurance of $3,000, for the fiscal year ending on April 30?a. debit Insurance Expense, $3,000; credit Prepaid Insurance, $3,000b. debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000c. debit Insurance Expense, $14,000; credit Prepaid Insurance, $14,000d. debit Prepaid Insurance, $11,000; credit Insurance Expense, $11,000

Answer 1

Answer:

b. debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000

Explanation:

For amount paid in advance for insurance, the expense is recorded when incurred by debiting the expense account and crediting prepaid insurance account to reduce the amount prepaid.

When the amount was prepaid, the entries would have been debit prepaid insurance and credit cash account.

Expired insurance (expense) = $14,000 - $3,000 = $11,000

Entries required to adjust for this

Debit Insurance Expense, $11,000;

Credit Prepaid Insurance, $11,000