Question

X Company prepares annual financial statements. On September 1, 2019, the Company paid $63,000 in advance for a two-year insurance policy. After the adjusting entry on December 31, 2019, what will X Company's 2019 financial statements show?

Prepaid Insurance, $63,000; Insurance expense, $0
Prepaid Insurance, $10,500; Insurance expense, $52,500
Prepaid Insurance, $52,500; Insurance expense, $10,500
Prepaid Insurance, $0; Insurance expense, $63,000
Prepaid Insurance, $47,250;   Insurance expense, $15,750
Prepaid Insurance, $15,750;   Insurance expense, $47,250

Answer 1

Ans.	Option   3rd   Prepaid Insurance, $52,500; Insurance expense, $10,500
	*COMPUTATIONS :
	Insurance expenses of one year (2019) = $63,000 / 2
		$31,500
	Insurance expenses for 4 months of 2019 (1 Sepember - 31 December) = $31,500 * 4 / 12
		$10,500
	Prepaid insurance for 2019 = Total insurance policy - Insurance expense for the 4 months of 2019
		$63,000 - $10,500
		$52,500