Another Accounting Question. Please Help!!?

Question

A company purchased a one-year liability insurance policy on March 1st 2000, for $3,600 and recorded it as a prepaid expense. What value should be used in the closing entry for insurance expense and prepaid insurance during the closing process at teh end of the first fiscal period on March 31st.

a)$3,600

b)$36

c) $300

d) $360

Answer 1

The answer is 'C'.... The reasoning behind it is:

3600 was recorded as an asset, "prepaid expenses" at the beginning of the month.  The policy was for 12 months so at the end of each month you will need to recognize that 1/12th of the asset, "prepaid expense", is no longer an asset.  The $300 entry will be a credit to prepaid expense which decreases the asset and a debit to insurance expense which will increase the expense.

Answer 2

c)$300