At year-end, the balance in the prepaid insurance account, prior to any adjustments, is $6,000. The amount of the journal entry required to record insurance expense will be $4,000 if the amount of unexpired insurance applicable to future periods is $2,000.1. True2. False

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Business

Roland Torres

1 November, 03:45

At year-end, the balance in the prepaid insurance account, prior to any adjustments, is $6,000. The amount of the journal entry required to record insurance expense will be $4,000 if the amount of unexpired insurance applicable to future periods is $2,000.1. True2. False

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Chana · Answer 1

1. True

Explanation:

When insurance is prepaid, the entries required are debit prepaid insurance and credit Cash. As the period for which the insurance cover was paid for runs out, debit Insurance expense, credit prepaid insurance.

As such when $4,000 of the $6,000 expires, it would be posted as a credit to prepaid insurance, hence unexpired insurance applicable to future periods which is the balance in the prepaid insurance is

= $6,000 - $4,000

= $2,000