Adjusting Entries for Insurance Expense

Exercise 4

On December 1, 20x1, Entity D signed a new insurance contract and paid $6,300 insurance premium for a three-month period from December 1 20x1 to February 20x2. Prepare journal entries on the following dates:

December 1, 20x1

Prepaid insurance

6,300

   Cash

6,300

December 31, 20x1

Insurance expense

2,100

   Prepaid insurance

2,100

[Note]

Insurance expense for December 20x1 = $6,300 / 3 months = $2,100

The balances of prepaid insurance account are as follows:

        Balance at December 1, 20x1 = $6,300

        Balance at December 31, 20x1 = $6,300 - $2,100 = $4,200