When Torretti Company began business on August 1, it purchased a one-year fire insurance policy and debited the entire cost of $7,200 to Unexpired Insurance. Torretti adjusts its accounts at the end of each month and closes its books at the end of the year.
Give the adjusting entry required at December 31 with respect to this insurance policy.
Give the closing entry required at December 31 with respect to insurance expense. Assume that this policy is the only insurance policy Torretti had during the year.
Compare the dollar amount appearing in the December 31 adjusting entry (part a) with that in the closing entry (part b). Are the dollar amounts the same? Why or why not? Explain.