Use the following information to answer Questions 1-6:
The unadjusted trial balance for a company as of Dec. 31, 2015 appears below.
Accounts receivable 12,000
Prepaid insurance 4,800
Accumulated depreciation $ 3,600
Accounts payable 1,000
Unearned revenue 9,400
Common stock 22,000
Retained earnings 7,500
Salary expense 8,200
Supplies expense 1,500
Utility expense 800
Rent expense 3,600
Advertising expense 1,200
Cost of goods sold 5,000
The adjusting journal entry to record item (E) above would include a:
debit to Prepaid Insurance for $1,200
credit to Prepaid Insurance for $800
credit to Insurance Expense for $2,200
credit to Insurance Expense for $800
debit to Insurance Expense for $1,200
Item E is the prepaid insurance portion of the annual premium which was paid on 1 Oct, 2015.
Year ending is Dec 2015 (3 months after the date of annual premium), so in order to record insurance expenses below journal entry needs to be passed-:
Insurance Expenses ($4,800 / 12 months * 3 months) A/c Dr. $1,200
To prepaid insurance $1,200
(Being insurance expenses booked for 3 months out of 12 months of insurance period)
On the basis journal entry, we can see that option (e) is the correct answer.
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