3. Accrual Accounting Concepts
Introduction to Adjusting Journal Entries and Prepaid Expenses
Multiple Choice
Multiple ChoiceOn January 1, a company purchased a two-year insurance policy at $2,400 per year in cash. At this time, the company included the entire value of the policy in Prepaid Insurance. The coverage began immediately. The adjusting entry necessary when preparing the June 30 financial statements would include:
A
Debit Prepaid Insurance $1,200; Credit Insurance Expense $1,200
B
Debit Insurance Expense $1,200; Credit Prepaid Insurance $1,200
C
Debit Prepaid Insurance $2,400; Credit Insurance Expense $2,400
D
Debit Insurance Expense $2,400; Credit Prepaid Insurance $2,400
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