Blue Stone purchased a one-year liability insurance policy on January 1st of this year for $3,600 and recorded it as a prepaid expense. From the selections of a. through d., select the value that would be utilized in the closing entry for insurance expense and prepaid insurance during the closing process at the end of the first fiscal period on January 31st. a. $3,600. b. $360. c. $300. d. $360.

Question

Brenna Park

Business

12 January, 12:44

Blue Stone purchased a one-year liability insurance policy on January 1st of this year for $3,600 and recorded it as a prepaid expense. From the selections of a. through d., select the value that would be utilized in the closing entry for insurance expense and prepaid insurance during the closing process at the end of the first fiscal period on January 31st. a. $3,600. b. $360. c. $300. d. $360.

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Esther Drake · Answer 1

The closing entry for insurance expense and prepaid insurance during the closing process at the end of the first fiscal period on January 31st is c. $300

Explanation:

It is standard accounting practice to use a 360-day year instead of a 365-day year, and treat each month as 30 days.

Since Blue Stone purchased a one-year liability insurance policy on January 1st of the year for $3,600 for the whole year. The insuarance expense for the month of January and each month through out the year would be calculated as:

= $3,600 / 12 = $300

Blue Stone will make a closing entry of $300 at the end of each month throughout the year fiscal year.