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29 August, 03:53

On January 1, a company purchased a five-year insurance policy for $2,200 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

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  1. 29 August, 06:54
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    Debit Insurance Expense 440

    Credit Prepaid Insurace 440

    Explanation:

    Since on January 1, the company purchased a five year insurance policy for $2,200 that means we have to divide the insurance policy amount of $2,200 by the numbers of year which is 5 years.

    Hence:

    $2,200/5 years

    =440

    Therefore the adjusting entry at the end of the first year is:

    Debit Insurance Expense 440

    Credit Prepaid Insurace 440
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