A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a:

Debit Insurance expense  $400

Credit Cash account          $400

Explanation:

On purchase of a policy that is billed to run over a period, the amount paid is first capitalized by posting the following entries;

Debit Prepaid expense

Credit Cash account

The amount is subsequently expensed by

Debit Insurance expense

Credit Cash account

As such where a 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment, the monthly amortization will be

= 1/12 × $4,800

= $400

The adjusting journal entry on December 31 includes a

Debit Insurance expense  $400

Credit Cash account          $400

one of the disadvantages of getting a government sponsored mortgage is they put a limit on the purchase price of the house. because the government is in charge of the mortage loan and terms, they are able to control how much money they are allowing someone to take out for the loan. not only are they incontrol, it's a lengthy process for a government sponsored mortgage.

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