Question 3 35 pts On May 1 2016 Wozniak Company purchased a

Question 3 3.5 pts On May 1, 2016, Wozniak Company purchased a two-year fire insurance policy for $3,600. On that date, Wozniak debited the prepaid insurance account for $3,600 What adjusting journal entry should Wozniak record on December 31, 2016? debit insurance expense $1,200 and credit prepaid insurance $1,200 debit insurance expense $1,800 and credit prepaid insurance $1,800 debit prepaid insurance $1,200 and credit insurance expense $1,200 debit prepaid insurance $1,800 and credit insurance expense $1,800 no adjusting entry should be made relating to the prepaid insurance

Solution

Insurance expense prepaid is for 2 years(ie 24 months) ie($3600/24)=$150/month

Hence insurance expense is to be adjusted for the period May 1,2016-December 31,2016(ie 8 months)

Hence the journal entry is:

insurance expense a/c..Dr$1200(8*1500)

To prepaid insurance $1200.

Hence the correct option is A.