On April 30, 2014, a three-year insurance policy was purchased with a cash payme
ID: 2492557 • Letter: O
Question
On April 30, 2014, a three-year insurance policy was purchased with a cash payment of $32,400. Coverage began immediately.
1- What is the amount of insurance expense that would be reported on the income statement for the year ended December 31, 2014?
A- $3,600
B- $10,800
C- $14,400
D- $7,200
2- What is the amount to be reported on the balance sheet as Prepaid Insurance at December 31, 2014?
A-$25,200
B-$0
C-$14,400
D-$10,800
1- What is the amount of insurance expense that would be reported on the income statement for the year ended December 31, 2014?
Explanation / Answer
Answer to Part 1.
The amount of Insurance Expenses that would be reported on December 31, 2014 is $ 7,200
On April 30,2014 Amount paid for Insurance of 3 years policy = $ 32,400
Time period = 8 months
The amount of Insurance expenses to be reported on December 31, 2014 = 32,400/ 36 *8
The amount of Insurance expenses to be reported on December 31, 2014 = $ 7,200
Answer to Part 2
Amount of Prepaid Insurance to be reported on December 31, 2014 is $ 25,200
The amount is paid in advance for 28 months
Therefore, prepaid insurance = 32,400 / 36 * 28 = $ 25,200
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