Ask Question
28 May, 01:51

On January 1, DogMart Company purchased a two-year liability insurance policy for $22,800 cash. The purchase was recorded to Prepaid Insurance. Prepare the January 31 adjusting entry.

+2
Answers (2)
  1. 28 May, 03:01
    0
    Adjusting Entry

    Date Accounts / Description Dr. Cr.

    January 31 Insurance Expenses $950

    Prepaid Insurance $950

    Explanation:

    On January 1 insurance purchased will be considered as the prepaid insurance and it is for 2 years (24 months). On January 31 one month's insurance expense has been accrued and it should be recorded and balance for this accrual should be transferred from prepaid insurance to insurance expense account.

    Insurance paid = $22,800

    Per month Insurance = $22,800 / 24 = $950 per month
  2. 28 May, 05:43
    0
    insurance expense 950 debit

    prepaid insurance 950 credit

    Explanation:

    When the firm purcahses the insurance it acquired the right in their favor thus, it gets an assets. As times passes the policy expires therefore, the asset of the firm llose value Hence, at the end of the month we have to adjust for the expired portion of the insurance

    22,800 is the value of the entire two years:

    22,800 / 24 months (two years) = 950 cost per month

    we decrease the prepaid insurance and recognize their expense as a result of past of time.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “On January 1, DogMart Company purchased a two-year liability insurance policy for $22,800 cash. The purchase was recorded to Prepaid ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers