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

question 147

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 Prepaid Insurance, $4,500; credit Insurance Expense, $4,500.
• D)Debit Insurance Expense, $7,750; credit Prepaid Insurance, $7,750.
• E)Debit Cash, $7,750; credit Prepaid Insurance, $7,750.

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Definitions:

Incremental Loss

The additional loss incurred from producing one extra unit of a product or service beyond the break-even point.

Special Order

An order for a product that is made to a customer's specifications, differing from regular stock products.

Capacity

The maximum level of output that a company can sustain to produce in a given period under normal circumstances.

Absorption Costing

An approach in accounting where the total manufacturing expenses, including direct materials, direct labor, and both kinds of manufacturing overhead (variable and fixed), are included in a product's costing.