Insurance renewed during the year: the year-end entry and balance

Transaction

On January 1 Prepaid Insurance had a balance of $540.00: the unexpired part of last year’s policy, covering January to March. On April 1 the company renewed the policy for one year (April 1 to March 31), paid $2,640.00 and debited Prepaid Insurance. No insurance adjustments have been recorded this year. Record the adjusting entry on December 31.

Assumptions: The company adjusts its accounts only at year end.