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A business paid \( \$ 2,940 \) for a 1-year insurance policy on May 30 . The policy starts on June 1. The company's year-end is December 31 . The year-end adjusting entry required is: Select one: a. D

Answer :

This adjusting entry ensures that the expense is recognized for the portion of the insurance policy that has been utilized, and the remaining unexpired portion is correctly reflected as a prepaid asset on the balance sheet at year-end

Based on the information provided, the year-end adjusting entry required for the insurance policy would involve the following accounts:

Prepaid Insurance: Debit

Insurance Expense: Credit

The adjusting entry would look like this:

Date: December 31

Account Debit Credit

Insurance Expense $490

Prepaid Insurance $490

Explanation:

The "Insurance Expense" account is credited (increased) with $490. This represents the portion of the insurance policy that has been used up or expired during the period from June 1 to December 31 (7 months out of the 12-month policy).

The "Prepaid Insurance" account is debited (decreased) with $490. This represents the portion of the insurance policy that remains unexpired as of December 31 (5 months out of the 12-month policy).

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