On April 1, Year8, the premium on a one-year insurance policy on equipment was p
ID: 2337437 • Letter: O
Question
On April 1, Year8, the premium on a one-year insurance policy on equipment was paid.
The premium was $3,000. The company does not have any other insurance policies.
The financial statements as of 12/31/Year8 would report:
Insurance expense $750; Prepaid insurance $2,250.
Insurance expense $0; Prepaid insurance $3,000.
Insurance expense $2,250; Prepaid insurance $750.
Insurance expense $2,000; Prepaid insurance $1000.
Insurance expense $3,000; Prepaid insurance $0.
a.Insurance expense $750; Prepaid insurance $2,250.
b.Insurance expense $0; Prepaid insurance $3,000.
c.Insurance expense $2,250; Prepaid insurance $750.
d.Insurance expense $2,000; Prepaid insurance $1000.
e.Insurance expense $3,000; Prepaid insurance $0.
Explanation / Answer
Annual Premium = $3,000
Monthly Premium = $3,000/12
Monthly Premium = $250
Premium for 9 months = 9 * $250
Premium for 9 months = $2,250
Insurance Expense = $2,250
Ending Prepaid Insurance = Beginning Prepaid Insurance - Insurance Expense
Ending Prepaid Insurance = $3,000 - $2,250
Ending Prepaid Insurance = $750
So, insurance expense of $2,250 will be reported in income statement and prepaid insurance of $750 will be reported in balance sheet.
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