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For each separate case below, follow the three-step process for adjusting the prepaid asset account at December 31.
Step 1: Determine what the current account balance equals.
Step 2: Determine what the current account balance should equal.
Step 3: Record the December 31 adjusting entry to get from step 1 to step 2
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8 0246.25
Assume no other adjusting entries are made during the year.
a. Prepaid Insurance. The Prepaid Insurance account has a $5,400 debit balance to start the year. A review of
insurance policies shows that $1,250 of unexpired insurance remains at year-end.
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Hint
Prepaid Insurance
References
Step 1: Determine what the current account balance equals.
Step 2: Determine what the current account balance should equal.
Step 3: Record the December 31, adjusting entry to get from step 1 to step 2.
Assume no other adjustments entries are made during the year

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Pauwii950

Answer:

Adjusting Journal Entries at December 31:

a. Debit Insurance Expense $3,800

Credit Prepaid Insurance $3,800

To record Insurance Expense for the year.

b. Debit Insurance Expense $1,040

Credit Prepaid Insurance $1,040

To record Insurance Expense for the year.

c. Debit Rent Expense $4,000

Credit Prepaid Rent $4,000

To record Rent Expense for the year.

Data Analysis and Calculations:

a. Prepaid Insurance.

Steps:

1. Balance at beginning $4,700 debit

2. Balance at end $900

3. Insurance Expense = $3,800 ($4,700 - $900)

Insurance Expense $3,800 Prepaid Insurance $3,800

b. Prepaid Insurance.

Steps:

1. Balance at beginning $5,890

2. Balance at end = $4,850 ($5,890 - $1,040)

3. Insurance Expense $1,040

Insurance Expense $1,040 Prepaid Insurance $1,040

C. Prepaid Rent

Steps:

1. Prepaid Rent $24,000

2. Balance at end = $20,000 ($24,000 - $4,000)

3. Rent Expense = $4,000 ($24,000 x 4/24)

Rent Expense $4,000 Prepaid Rent $4,000

Explanation:

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