Accounting, Need to know the correcting entries for an omission of a prepaid adjustment.?

Question

Here is the question:

The High Speed Corporation purchased a casualty insurance policy on July 1, 2005 which expires June 30, 2006. The cost of the insurance is $100,000. High Speed did not make an adjusting entry for insurance expense in 2005 or 2006. What journal entry should be made for the fiscal year ending December 31, 2006?

Answer 1

Assuming the original entry was to credit cash and debit some pre-paid account for $100,000, the 12/31/06 entry would be to credit that pre-paid and debit the expense account for the same amount.

Answer 2

If financial Y/E for High Speed Corp follows calendar year, the entries would be :-

Dr Retained earnings $50K (to adj Jul-Dec05 insurance exp)

Dr Insurance expenses $50K (to adj Jan-Jun06 insurance exp)

Cr Prepayment $100K