02. on november 1 of the current year, prepaid insurance was debited for $9,000. this amount represents…

02. on november 1 of the current year, prepaid insurance was debited for $9,000. this amount represents payment for one year of insurance paid in advance. assuming the fiscal year ends on december 31, the adjusting entry on december 31 will include a:\n\no debit to insurance expense for $1,500\no credit to prepaid insurance for $7,500\no debit to prepaid insurance for $1,500\no credit cash for $1,500

02. on november 1 of the current year, prepaid insurance was debited for $9,000. this amount represents payment for one year of insurance paid in advance. assuming the fiscal year ends on december 31, the adjusting entry on december 31 will include a:\n\no debit to insurance expense for $1,500\no credit to prepaid insurance for $7,500\no debit to prepaid insurance for $1,500\no credit cash for $1,500

Answer

Explanation:

Step1: Calculate monthly insurance expense

The annual prepaid - insurance is $9,000. So the monthly insurance expense is $\frac{9000}{12}=750$.

Step2: Determine the number of months elapsed

From November 1 to December 31, the number of months elapsed is 2 months.

Step3: Calculate the insurance expense for the elapsed period

The insurance expense for 2 months is $750\times2 = 1500$. When recording the adjusting entry, we need to debit Insurance Expense (to recognize the expense) and credit Prepaid Insurance (to reduce the prepaid amount).

Answer:

A. debit to Insurance Expense for $1,500