Multiple Choice
In the context of adjusting journal entries and prepaid expenses, contingent projects would imply that:
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3. Accrual Accounting Concepts
Introduction to Adjusting Journal Entries and Prepaid Expenses
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The prepaid insurance balance on December 31, 2017 was correctly shown as \$900. On April 1, 2018 an additional premium of \$600 was paid by the company. The balance sheet at December 31, 2018 showed the appropriate amount of prepaid insurance as \$500. The correct amount of insurance expense for 2018 would be:
A
\$600
B
\$1,000
C
\$1,400
D
\$1,500
Verified step by step guidance1
Identify the initial prepaid insurance balance on December 31, 2017, which is \$900.
Note that an additional premium of \$600 was paid on April 1, 2018, increasing the prepaid insurance balance.
Calculate the total prepaid insurance available for 2018 by adding the initial balance and the additional premium: \$900 + \$600.
Determine the prepaid insurance balance on December 31, 2018, which is given as \$500.
Calculate the insurance expense for 2018 by subtracting the ending prepaid insurance balance from the total prepaid insurance available: (\$900 + \$600) - \$500.
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