Chapter 3, Problem 5QS

Prepaid (deferred) expenses adjustments P1

For each separate case below, follow the three-step process for adjusting the prepaid asset account at December 31. Step 1. Determine what the current account balance equals. Step 2. Determine what the current account balance should equal. Step 3: Record the December 31 adjusting entry to get from step 1 to step 2. Assume no other adjusting entries are made during the year.

1. Prepaid Insurance. The Prepaid Insurance account has a $4.700 debit balance to start the year. A review of insurance policies and payments shows that $900 of unexpired insurance year-end.
2. Prepaid Insurance. The Prepaid Insurance account has a $5.890 debit balance at the start of the year. A review of insurance policies and payments shows $1.040 of insurance has exp year-end.
3. Prepaid Rent. On September 1 of the current year, the company prepaid $ 24,000 for two years of rent for facilities being occupied that day. The company debited Prepaid Rent and Cash for $24.000.