Explanation:
The journal entries are as follows:
On July 1, 2020
Prepaid insurance Dr $14,400
To Cash $14,400
(Being the cash paid for insurance is recorded)
On December 31, 2020
Insurance expense Dr $2,400
To Prepaid insurance $2,400
(Being the insurance expense is recorded)
It is computed below:
= $14,400 × 6 months ÷ 36 months
= $2,400
Prepaid Insurance
July 31 $14,400 December 31 $2,400
December 31'
Balance $12,000
Insurance expense
December 31 $3,600
