Toro, Inc. paid $9,330 to renew its only insurance policy for three years on Mar

Question

Toro, Inc. paid $9,330 to renew its only insurance policy for three years on March 1, year 1, the effective date of the policy. At March 31, year 1, Toro's unadjusted trial balance showed a balance of $450 for prepaid insurance and $9,330 for insurance expense.

Required:

What amounts should be reported for prepaid insurance and insurance expense in Toro's financial statements for the three months ended March 31, year 1? Hint: The price of the insurance premium increased in the current year.

NOTE: Be sure to show all your calculations. This has the possibility of partial credit. Incorrect answers without calculations will automatically result in zero points.

Explanation / Answer

The amount paid as Insurance Premium in March for a period of three years or 36 months = $ 9,330 The charge in the Insurance Premium per month 259.17 $ March 31 Balances $ Prepaid Insurance Balance 450 Balance of New Policy for 35 months 9070.83 Total Balance in Prepaid Insurance 9520.833 Insurance Expenses 259.17

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