On January 1, Taylor Manufacturing Company purchased a 12-month insurance policy for $1,200 and recorded it as Prepaid Insurance. On December 31 the bookkeeper observed the prepaid insurance account had a $1,200 balance representing the insurance purchased on January 1.

Required

A. Record the insurance purchase on January 1.

B. Prepare the entry required to record insurance expense for the year appropriately.

C. Prepare a table similar to Exhibit 5 that illustrates how Prepaid Insurance links Insurance Expense and Cash.