ON APRIL 1, THERE WAS $5,000 OF PREPAID INSURANCE DURING THE YEAR, A TOTAL OF $12,000...

ON APRIL 1, THERE WAS $5,000 OF PREPAID INSURANCE

DURING THE YEAR, A TOTAL OF $12,000 WAS PAID OUT IN INSURANCE PREMIUMS.

ON MAY 31, THE PREPAID INSURANCE WAS $6,000

CALCULATE THE INSURANCE EXPENSE FOR THE YEAR
IF YOU ARE TOLD THAT THE CORPORATION HAS RECEIVED $5,000 FOR AN INSURANCE CLAIM DURING THE YEAR, WHAT WOULD BE THE CHANGE IN THE INSURANCE EXPENSE?

Expert Solution

Actual expense insurance during the year is equal to

Prepaid insurance+insurance paid - prepaid insurance of the next year.

Hence insurance expense=5000+12000-6000=11000

Insurance claim does not affect the insurance expense.

It is to be credited separately and not be set-off in the expense.

ekkarill92 answered 2 years ago

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