Answer
July 1 Prepaid Insurance...................................................... 15,000
Cash....................................................................... 15,000
Dec. 31 Insurance Expense.................................................... 2,500
Prepaid Insurance.............................................. 2,500 ($15,000 X 1/2 X 1/3)
Work Step by Step
July 1 Debit prepaid insurance account for amount paid and credit cash. Dec 31 To adjust for December, we take the cash paid on insurance expense and multiply by half and a third per the time period to get the adjusted value for 31st Dec, and then we credit this value on the prepaid insurance expense account.
