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Mouse Inc. uses the alternative method of accounting for prepayments and purchased a $1,200, 6-month insurance policy. The company immediately debited the Insurance expense account. By the end of the period, $400 of the policy had expired. Demonstrate the required adjustment needed at the end of the period.
a) Credit Prepaid insurance $800.
b) Debit Prepaid insurance $800.
c) Debit Insurance expense $400.
d) Debit Prepaid insurance for $400.

Respuesta :

Parrain

Based on the amount of the policy that has expired, Mouse Inc. should b) Debit Prepaid insurance $800.

Why should this be done?

When prepayments such as these are made, they should be sent to the prepaid account. At the end of the period, the balance in the prepaid account should reflect expenses that have been paid for, but not yet incurred.

At the end of this period therefore, the prepaid expenses should be debited for $800 which is the amount of insurance that is yet to be used.

In conclusion, option B is correct.

Find out more on prepaid expenses at https://brainly.com/question/9270086.

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