QS 3-5 (Static) 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. Answer is complete but not entirely correct. a. Prepaid Insurance. The Prepaid Insurance account has a $4,700 debit balance to start the year. A review of insurance policies shows that $900 of unexpired insurance remains at year-end. Step 1: Determine what the current account balance equals. DR or CR? $ 4,900 Debit Prepaid Insurance 4,900 3,900 Step 2: Determine what the current account balance should equal. $ 1,000 Debit 1.000 Step 3: Record the December 31 adjusting entry to get from step 1 to step 2. Adjusting Entry Debit Credit Insurance expense 3,900