Allied,Inc.bought a 2-year insurance policy on August 1 for $3,600.The adjusting entry on December 31 would be:
A)debit Insurance Expense,$150;credit Prepaid Insurance,$150.
B)debit Prepaid Insurance,$150;credit Insurance Expense,$150.
C)debit Insurance Expense,$750;credit Prepaid Insurance,$750.
D)debit Prepaid Insurance,$750;credit Insurance Expense,$750.

Question

Quizplus · Accepted Answer

The insurance policy covers 24 months, costing $3,600, so the monthly expense is $150. From August 1 to December 31, 5 months have passed, resulting in an expense of $750 (5 months x $150). The adjusting entry debits Insurance Expense and credits Prepaid Insurance for $750.