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 $5,900 debit balance to start the year. A review of insurance policies shows that $1,500 of unexpired insurance remains at year-end. DR or CR? Prepaid insurance 5,900 Step 1: Determine what the current account balance equals. $ 5,900 Debit 4,400 Step 2: Determine what the current account balance should equal. $ 1,500 Debit 1,500 Credit Step 3: Record the December 31, adjusting entry to get from step 1 to step 2. Adjusting Entry Debit Insurance expense 4,400 Prepaid insurance 4,400 b. Prepaid Insurance. The Prepaid Insurance account has a $7,090 debit balance at the start of the year. A review of insurance policies shows $1,520 of insurance has expired by year-end. DR or CR? Prepaid insurance 7,090 Step 1: Determine what the current account balance equals. $ 7,090 Debit Step 2: Determine what the current account balance should equal. $ 1,520 Debit 1,520 Step 3: Record the December 31, adjusting entry to get from step 1 to step 2. Adjusting Entry Debit Credit Insurance expense Prepaid insurance c. Prepaid Rent. On September 1 of the current year, the company prepaid $38,400 for two years of rent for facilities being occupied that day. The company debited Prepaid Rent and credited Cash for $38,400. 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