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On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

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Answer:

Debit Insurance Expenses $360

Credit Prepaid Insurance $360

Explanation:

Adjusting entries for the first year

Debit Insurance Expenses $360

Credit Prepaid Insurance $360

Five-year insurance policy purchased for $1,800

= $1,800÷5

= $360