Which of the Following Journal Entries Correctly Records Paying for a $900

question 60

Multiple Choice

Which of the following journal entries correctly records paying for a $900 one year insurance policy in advance?

• A) \(\begin{array} { | c | r | r | }
• \hline \text { Insurance expense } & 900 & \\
• \hline \text { Prepaid insurance } & & 900 \\
• \hline
• \end{array}\)
• B) \(\begin{array} { | c | r | r | }
• \hline \text { Prepaid insurance } & 900 & \\
• \hline \text { Insurance payable } & & 900 \\
• \hline
• \end{array}\)
• C) \(\begin{array} { | c | r | r | }
• \hline \text { Insurance expense } & 900 & \\
• \hline \text { Cash } & & 900 \\
• \hline
• \end{array}\)
• D) \[\begin{array} { | c | r | r | }
• \hline \text { Prepaid insurance } & 900 & \\
• \hline \text { Cash } & & 900 \\
• \hline
• \end{array}\]

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Definitions:

Profit-Leverage Effect

A financial concept indicating that a reduction in purchasing costs can have a more significant impact on a company's profit than an equivalent increase in sales.

Cost of Purchases

The total expense incurred in acquiring goods and services, including price, shipping, and handling, among other costs.

Annual Sales

The total revenue a company generates from its operations over a one-year period.

Supply Chains

Networks involving organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer.