Question

1. allied, inc. bought a two - year insurance policy on august 1 for $3,600. whats the adjusting journal entry on december 31?

Explanation:

Step1: Calculate monthly insurance expense

The insurance policy is for 2 - year ($2\times12 = 24$ months) and costs $3600$. So the monthly insurance expense is $\frac{3600}{24}=150$ dollars.

Step2: Determine number of months from Aug 1 - Dec 31

From August 1 to December 31, there are 5 months.

Step3: Calculate insurance expense for the period

The insurance expense for 5 months is $150\times5 = 750$ dollars.

Step4: Determine adjusting journal entry

The adjusting journal entry will debit Insurance Expense for $750$ and credit Pre - paid Insurance for $750$.
Debit: Insurance Expense $750$
Credit: Pre - paid Insurance $750$

Answer:

Debit: Insurance Expense $750$; Credit: Pre - paid Insurance $750$