QS 3-5 Prepaid (deferred) expenses adjustments LO 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

a. Prepaid Insurance. The Prepaid Insurance account has a $6,000 debit balance to start the year. A review of insurance policies and payments shows that $1,550 of unexpired insurance remains at year-end.
			Prepaid Insurance
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.
b. Prepaid Insurance. The Prepaid Insurance account has a $7,190 debit balance at the start of the year. A review of insurance policies and payments shows $1,560 of insurance has expired by year-end.
			Prepaid Insurance
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.
c. Prepaid Rent. On September 1 of the current year, the company prepaid $39,600 for two years of rent for facilities being occupied that day. The company debited Prepaid Rent and credited Cash for $39,600.
			Prepaid Rent
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.