Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2021, and charged the $4,200 premium to Insurance expense. At its December 31, 2021, year-end, Yummy Foods would record which of the following adjusting entries?

The adjusting entry is shown below:

Prepaid insurance A/c Dr $3,375

To Insurance expense A/c $3,375

(Being the prepaid insurance is recorded)

The computation is shown below:

Since there is a premium to insurance expense is $4,200

For 1 year it would be

= $4,200 : 2 year

= $2,100

And it is to charged for 5 months also,

= $2,100 * 5 month : 12 months

= $875

So, the adjusted amount equal to

= $4,200 - $875

= $3,325