A 12-month insurance policy was purchased on dec. 1 for $3,600 and the prepaid insurance account was increased for the payment. demonstrate the required adjusting journal entry on dec. 31 by selecting from the choices below.

Question: A 12-month insurance policy was purchased on dec. 1 for $3,600 and the prepaid insurance account was increased for the payment. demonstrate the required adjusting journal entry on dec. 31 by selecting from the choices below.

The required adjusting journal entry on December 31 for a 12-month insurance policy purchased on December 1 for $3,600 is:

Debit: Insurance Expense ($3,600 / 12 months * 1 month) = $300
Credit: Prepaid Insurance $300

This adjusting journal entry is necessary to record the portion of the insurance policy that has expired in the current month. The prepaid insurance account is decreased by $300, which represents the expired portion of the policy. The insurance expense account is increased by $300, which represents the cost of the insurance that has been used in the current month.

Here is a breakdown of the journal entry:

• Debit Insurance Expense: This account is debited to record the cost of the insurance that has been used in the current month.
• Credit Prepaid Insurance: This account is credited to decrease the value of the prepaid insurance asset. The prepaid insurance asset represents the future value of the insurance policy that has not yet expired.

By making this adjusting journal entry, we ensure that the financial statements accurately reflect the company's financial position and performance.

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