question 31\n2.5 pts\non january 1, a company purchased a five - year insurance policy for $2,600 with…

question 31\n2.5 pts\non january 1, a company purchased a five - year insurance policy for $2,600 with coverage starting immediately. if the purchase was recorded in the prepaid insurance account, and the company records adjustments only at year - end, the adjusting entry at the end of the first year is:\ndebit prepaid insurance, $2,080; credit insurance expense, $2,080.\ndebit insurance expense, $520; credit prepaid insurance, $520.\ndebit prepaid insurance, $2,600; credit cash, $2,600.\ndebit prepaid insurance, $520; credit insurance expense, $520.\ndebit insurance expense, $520; credit prepaid insurance, $2,080.

question 31\n2.5 pts\non january 1, a company purchased a five - year insurance policy for $2,600 with coverage starting immediately. if the purchase was recorded in the prepaid insurance account, and the company records adjustments only at year - end, the adjusting entry at the end of the first year is:\ndebit prepaid insurance, $2,080; credit insurance expense, $2,080.\ndebit insurance expense, $520; credit prepaid insurance, $520.\ndebit prepaid insurance, $2,600; credit cash, $2,600.\ndebit prepaid insurance, $520; credit insurance expense, $520.\ndebit insurance expense, $520; credit prepaid insurance, $2,080.

Answer

Explanation:

Step1: Calculate annual insurance expense

The insurance policy cost is $2,600 for 5 - year. So the annual expense is $2600\div5 = 520$.

Step2: Determine adjusting - entry

At the end of the first year, an expense has been incurred. We need to debit Insurance Expense (to recognize the expense) and credit Prepaid Insurance (to reduce the prepaid amount). The amount is the annual insurance expense of $520.

Answer:

Debit Insurance Expense, $520; credit Prepaid Insurance, $520.