On 1 July 2014 Tan Traders Paid $600, Representing a Two-Year

question 6

Multiple Choice

On 1 July 2014 Tan Traders paid $600, representing a two-year insurance premium. The $600 was initially recorded in the insurance expense account. The correct adjusting entry on 31 December 2014, the close of the annual accounting period, is which of the following?

• A) Debit prepaid insurance $450; credit insurance expense $450
• B) Debit prepaid insurance $150; credit insurance expense $150
• C) Debit prepaid insurance $300; credit insurance expense $300
• D) Debit insurance expense $150; credit prepaid insurance $150

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Definitions:

Common Activity Base

A measure used in activity-based costing for allocating overhead and indirect costs to products or services based on relevant activities.

Job Cost Sheet

A document that records the materials, labor, and manufacturing overhead costs assigned to an individual job or project.

Cost Accounting

A branch of accounting focused on capturing a company's total cost of production by assessing its variable and fixed costs.

Product Costs

Costs directly attributable to the creation of a product, including direct labor, materials, and manufacturing overhead.