Marcy's Event Planning Services, Inc. records deferred expenses and deferred revenues using the alternative treatments. The business makes adjusting entries as needed to bring its books to the full accrual basis once a year at the end of the year. On October 1, Marcy's paid $3,600 for insurance for a one-year period. At the end of the year, it will make an adjusting entry that debits Insurance Expense for $1,500.

Question

Quizplus · Accepted Answer

The adjusting entry should debit Insurance Expense for $900, not $1,500, because only three months (October to December) of the insurance coverage have been used by the end of the year.