What Is the Proper Adjusting Entry at December 31, the End

question 64

Multiple Choice

What is the proper adjusting entry at December 31, the end of the accounting period, if the balance in the prepaid insurance account is $7,750 before adjustment, and the unexpired amount per analysis of policies is, $3,250?

• A) Debit Insurance Expense, $3,250; credit Prepaid Insurance, $3,250.
• B) Debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500.
• C) Debit Insurance Expense, $7,750; credit Prepaid Insurance, $7,750.
• D) Debit Cash, $7,750; Credit Prepaid Insurance, $7,750.
• E) Debit Prepaid Insurance, $4,500; credit Insurance Expense, $4,500.

---

Definitions:

Implied Share Price

The theoretical price of a company's stock derived from certain financial models, reflecting the market's expectations of its future cash flows or earnings.

Earnings Multiple

A valuation ratio that compares a company's current share price to its per-share earnings, commonly used to gauge stock prices.

Abnormal Earnings

Earnings that are above or below the normal or expected level due to unusual circumstances or events.

Actual Earnings

The real profits generated by a company within a specific period, usually reported quarterly or annually.