On April 1, Year8, the premium on a one-year insurance policy on equipment was paid. The...

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:

	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.

Expert Solution

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.

ekkarill92 answered 2 years ago

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