Answer:
1. Recore the purchase of insurance in advance on March,1.
Debit Prepaid Insurance $36,000
Credit Cash $36,000
2. Record the adjusting entry on December, 31.
Debit Insurance Expense $30,000
Credits Prepaid Insurance $30,000
Explanation:
Mountaineer excavation purchases one year of flood insurance in advance on March 1, paying $36,000 ($3,000/month). The company records the insurance as the prepaid Insurance:
Debit Prepaid Insurance $36,000
Credit Cash $36,000
On December, 31, the last day of the following 10 months, the company records an adjusting entry that Credits Prepaid Insurance for $30,000 ($3,000/month times the 10 months) and Debits Insurance Expense for $30,000
Debit Insurance Expense $30,000
Credits Prepaid Insurance $30,000
