Chet Company paid $52,800 for a four-year insurance policy on September 1 and recorded the $52,800 as a debit to Prepaid Insurance and a credit to Cash. What adjusting entry should Chet make on December 31, the end of the accounting period? A) Prepaid Insurance 48,400 Insurance Expense 48,400 B) Insurance Expense 13,200 Prepaid Insurance 13,200 C) Prepaid Insurance 4,400 Insurance Expense 4,400 D) Insurance Expense 4,400 Prepaid Insurance 4,400

The answer is D

Dr: Insurance expense $4,400

Cr: Prepaid Insurance $4,400

Explanation:

Prepaid insurance is an asset because the benefits has been enjoyed. The business has paid ahead. As this benefits is being enjoyed, insurance expense will increase and prepaid insurance account will decrease by the same amount.

The insurance is for four years(48months) and the total amount paid was $52,800. So what will be recognized monthly is

$52,800/48months

=$1,100

From September 1 through December 31st is four months. That means $4,400($1,100 x4) will be recognized as interest expense and prepaid insurance will also decrease by this amount too.

We have:

Dr: Insurance expense $4,400

Cr: Prepaid Insurance $4,400

two years ago, when picking flowers in the mountains back of yosemite valley, i found a book. it was blotted and storm-beaten; all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however; many of the inner pages were well preserved. and although all were more or less stained and torn, whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today; its granite pages have been torn and blurred by the same storms that wasted the castaway book.

two years ago, when picking flowers in the mountains back of yosemite valley; i found a book. it was blotted and storm-beaten, all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however, many of the inner pages were well preserved. and although all were more or less stained and torn; whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today, its granite pages have been torn and blurred by the same storms that wasted the castaway book.