Adjustment for prepaid expense

Question

The prepaid insurance account had a beginning balance of $5,550 and was debited for $3,270 of premiums paid during the year.

Journalize the adjusting entry required at the end of the year, assuming the amount of unexpired insurance related to future periods is $2,470. If an amount box does not require an entry, leave it blank.

Answer 1

To find the adjusting entry for prepaid insurance, we need to determine the amount of insurance expense that should be recognized during the year.

1. Calculate the total prepaid insurance available for the year:

   • Beginning balance: $5,550
   • Plus premiums paid during the year: $3,270
   • Total prepaid insurance: $5,550 + $3,270 = $8,820

2. Identify the unexpired insurance at year-end:

   • Unexpired insurance related to future periods: $2,470

3. Calculate the insurance expense for the year:

   • Insurance expense = Total prepaid insurance - Unexpired insurance
   • Insurance expense = $8,820 - $2,470 = $6,350

Now, we need to journalize the adjusting entry for the insurance expense.

Journal Entry

Date: [End of Year]

| Account Title | Debit | Credit | |-----------------------|------------|------------| | Insurance Expense | $6,350 | | | Prepaid Insurance | | $6,350 |

This adjusting entry reflects the recognition of insurance expense for the year and reduces the prepaid insurance account by the amount that has now expired.