glinton7546 glinton7546

25-02-2020
Business

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Diane's Designs purchased a one-year liability insurance policy on March 1 of a year for $8,400 and recorded it as a prepaid expense. Which of the following amounts would be recorded as insurance expense during the adjusting process at the end of Diane's first month of operations on March 31?a. $320. b. $3,520.c. $3,840.d. $384.

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omotayoadekoya1 omotayoadekoya1

26-02-2020

Answer:

$700 (not given in the options)

Explanation:

When the policy is purchased with a payment made in advance, the entries recorded are

Debit prepaid insurance $8,400

Credit Cash account $8,400

After the first month, the expense incurred is

= 1/12 × $8,400

= $700

Entries then required

Debit Insurance expense $700

Credit Prepaid Insurance $700

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