Question

multiple choice question
a 12-month insurance policy was purchased on dec.1 for $3,600 and the prepaid insurance account was increased for the payment. demonstrate the required adjusting journal entry on dec. 31 by selecting from the choices below.
○ prepaid insurance would be credited for $3,600.
○ insurance expense would be debited for $300.
○ cash would be credited for $3,600.
○ insurance expense would be debited for $3,600.

Explanation:

Step1: Calculate monthly insurance cost

$\frac{\$3,600}{12} = \$300$

Step2: Identify adjusting entry logic

By Dec.31, 1 month of insurance is used, so we recognize $300 as expense (debit Insurance Expense) and reduce the Prepaid Insurance asset (credit Prepaid Insurance). This matches the correct option.

Answer:

Insurance expense would be debited for $300.