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6 May, 14:42

Harrod Company paid $5,800 for a 4-month insurance premium in advance on November 1, with coverage beginning on that date. The balance in the prepaid insurance account before adjustment at the end of the year is $5,800, and no adjustments had been made previously. The adjusting entry required on December 31 is:

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  1. 6 May, 15:32
    0
    Prepaid Insurance = credit = $2900.

    Prepaid Insurance = debit = $2900

    Explanation:

    So, we are given the following data or parameters or information which is going to assist us in solving this particular Question or problem;

    => The amount paid for a 4-month insurance premium in advance on November 1, with coverage beginning on that date = $5,800.

    => "The balance in the prepaid insurance account before adjustment at the end of the year = $5,800, and no adjustments had been made previously.

    So, we are asked to determine the adjusting entry required on December 31.

    The adjusting entry required on December 31;

    Prepaid Insurance = credit = 5800 * 2/4 = $2900.

    Prepaid Insurance = debit = $2900.
  2. 6 May, 16:20
    0
    Debit Insurance Expense $2,900; Credit Prepaid Insurance $2,900

    Explanation:

    Total Prepaid Insurance = $5,800

    Monthly Insurance=Total Prepaid Insurance / 4 = $1,450

    Insurance expenses for 2 month (November and December) = $1,450 * 2 = $2,900

    There is no cash transaction in this adjusting entry

    When insurance expenses increase = Debit

    When decrease in prepaid expenses = Credit

    Debit Insurance Expense $2,900; Credit Prepaid Insurance $2,900
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