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MMLU / Bailey Co. changed the accounting for insurance expense from the cash basis to…

Problem

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question

Bailey Co. changed the accounting for insurance expense from the cash basis to the accrual basis in the current year. In January of the prior year Bailey recorded insurance expense of $240000 for the cash purchase of a four-year insurance policy. How should Bailey report the insurance transaction in the current year's financial statements?

choices

  1. As a $180000 debit to prepaid insurance.
  2. As a $60000 debit to insurance expense.
  3. As a $60000 debit to insurance expense a $120000 debit to prepaid asset and $180000 credit to retained earnings.
  4. As a $180000 debit to insurance expense a $120000 credit to prepaid asset and $60000 credit to retained earnings.

subject

professional_accounting

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Source and history

task_id
261827a0-4e6c-5cbb-9575-1ab218f7db62
task_key
all--test--261827a0-4e6c-5cbb-9575-1ab218f7db62
task_revision_id
1
config / split
all / test

Official source

initial import