QS 3-5 Prepaid (deferred) expenses adjustments P1 For each separate case below, follow the threestep process for adjusting the prepaid asset account at December 31 . Step I: 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 adjasting entries are made during the year. a. Prepaid Insurance. The Prepaid Insurance account has a $4.700 debit balance to start the year. A review of insarance policies shows that $900 of unexpired insurance remains at yearend. b. Prepaid Insurance. The Prepaid Insurance account has a $5.890 debit balance at the start of the year. A review of insurance policies shows $1,040 of insurance has expired by yearend. c. Prepaid Rent. On September 1 of the current year, the company prepaid $24.000 for two years of rent for facilities being oceupied that day. The company debited Prepaid Rent and credited Cash for $24,000. Which of the following statements is incorrect? A) Adjusting entries can be used to record both accrued expenses and accrued revenues. B) Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time. C) Adjustments to prepaid expenses and unearned revenues involve previously recorded assets and liabilities. D) Accrued expenses and accrued revenues involve assets and liabilities that had not previously been recorded. E) Adjusting entries affect only balance sheet accounts