The prepaid insurance account had a balance of $3,000 at the beginning of the year. The account was debited for $32,500 for premiums on policies

The prepaid insurance account had a balance of $3,000 at the beginning of the year. The account was debited for $32,500 for premiums on policies purchased during the year. Journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment: (a) the amount of unexpired insurance applicable to future periods is $4,800; (b) the amount of insurance expired during the year is $30,700.


Answers:

a. Insurance Expense30,700
Prepaid Insurance30,700
Insurance expired ($3,000 + $32,500 – $4,800).
b. Insurance Expense30,700
Prepaid Insurance30,700
Insurance expired.