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27 August, 15:14

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. 14 - Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

a. Prepaid insurance would be credited for $3,600.

b. Cash would be credited for $3,600.

c. Insurance expense would be debited for $300.

d. Insurance expense would be debited for $3,600.

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  1. 27 August, 15:23
    0
    The correct answer is C

    Explanation:

    The insurance policy was purchased on Dec 1 worth $3,600, so on Dec 31, the entry to be recorded is as follows:

    Insurance expense A/c ... Dr $300

    Prepaid insurance A/c ... Cr $300

    When the asset is charged on to the expense account then the expense account of the insurance is debited against the account of the prepaid insurance.

    Working Note:

    Amount = Insurance amount / Number of months

    = $3,600 / 12

    =$300
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