The balance in the prepaid insurance account, before adjustment at the end of the year, is $27,000. Journalize the adjusting entry required

The balance in the prepaid insurance account, before adjustment at the end of the year, is $27,000. Journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment: (a) the amount of insurance expired during the year is $20,250; (b) the amount of unexpired insurance applicable to future periods is $6,750.


Answers:

a. Insurance Expense20,250
Prepaid Insurance20,250
Insurance expired.
b. Insurance Expense20,250
Prepaid Insurance20,250
Insurance expired ($27,000 – $6,750).