For each separate case below, follow the three-step process for
adjusting the prepaid asset account at December 31.
Step 1: Determine what the current account balance equals.
Step 2: Determine what the current account balance should
equal.
Step 3: Record the December 31 adjusting entry to get from step 1
to step 2.
Assume no other adjusting entries are made during the
year
|
|
| a. Prepaid Insurance. The Prepaid
Insurance account has a $5,000 debit balance to start the year. A
review of insurance policies shows that $1,050 of unexpired
insurance remains at year-end. |
|
|
|
| DR or CR? |
Prepaid Insurance |
| Step 1: Determine what the current
account balance equals. |
$5,000 |
Debit |
5,000 |
|
|
|
|
3,950 |
| Step 2: Determine what the current
account balance should equal. |
$1,050 |
Debit |
1,050 |
|
|
|
|
| Step 3: Record the December 31,
adjusting entry to get from step 1 to step 2. |
|
| Adjusting Entry |
Debit |
Credit |
| Insurance Expense |
3,950 |
|
| Prepaid Insurance |
|
3,950 |
|
| b. Prepaid Insurance. The Prepaid
Insurance account has a $6,190 debit balance at the start of the
year. A review of insurance policies shows $1,160 of insurance has
expired by year-end. |
|
|
|
|
| DR or CR? |
Prepaid Insurance |
| Step 1: Determine what the current
account balance equals. |
$6,190 |
Debit |
6,190 |
|
|
|
|
1,160 |
| Step 2: Determine what the current
account balance should equal. |
$5,030 |
Debit |
5,030 |
|
|
|
|
| Step 3: Record the December 31,
adjusting entry to get from step 1 to step 2. |
|
| Adjusting Entry |
Debit |
Credit |
| Insurance Expense |
1,160 |
|
| Prepaid Insurance |
|
1,160 |
|
| c. Prepaid Rent. On September 1 of the
current year, the company prepaid $27,600 for two years of rent for
facilities being occupied that day. The company debited Prepaid
Rent and credited Cash for $27,600. |
|
|
|
|
| DR or CR? |
Prepaid Rent |
| Step 1: Determine what the current
account balance equals. |
$27,600 |
Debit |
27,600 |
|
|
|
|
|
| Step 2: Determine what the current
account balance should equal. |
? |
Debit |
27,600 |
|
|
|
|
| Step 3: Record the December 31,
adjusting entry to get from step 1 to step 2. |
|
| Adjusting Entry |
Debit |
Credit |
| Rent Expense |
? |
|
| Prepaid Rent |
|
? |
|
|