A Company Has an Asset Account, Prepaid Insurance, with a Balance

question 33

Multiple Choice

A company has an asset account, Prepaid Insurance, with a balance of $3,750 at the beginning of the month. The company used $980 of insurance during the month. Which of the following statements is true?

• A) The company should credit Insurance Expenses for $980 and debit Prepaid Insurance for $980.
• B) Retained earnings and stockholders' equity should decrease because of this transaction.
• C) The company should credit Accrued Liabilities for $980 and debit Insurance Expenses for $980.
• D) Retained earnings and stockholders' equity should be unchanged by this transaction.

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Definitions:

Wage Rate

The amount of money paid to an employee per unit of time, often per hour or day.

Utility Function

A mathematical representation in economics that captures an individual's preference ranking for different bundles of goods or outcomes.

Nonlabor Income

Income received from sources other than employment, such as investments, pensions, or inheritances.

Wage Rate

The fixed or variable payment earned by employees for their work or services, typically documented on an hourly, daily, or piecework basis.