Question

In January of the current calendar fiscal year, a company paid $36,000 for insurance coverage for the next three years. After the first ten months of the insurance policy have lapsed, all of the following are true except:

Question 24 options:

	Insurance Expense will have a debit balance of $10,000
	The monthly entry to record insurance expense will include a $1,000 credit to Prepaid Insurance
	Prepaid Insurance will have a debit balance of $26,000
	The year to date impact on the Balance Sheet will include a $10,000 reduction to Equity
	The monthly entry to record insurance expense will include a $1,000 credit to Insurance Expense

Answer 1

Entry passed on jan. 1:-

prepaid insurance	36000
Cash		36000

After the first ten months of the insurance policy have lapsed,Entry passed :-

Insurance exp.( 36000 * 10 / 36 months )	10000
prepaid insurance		10000

Option A is true.

Option B is true since monthly insurance exp. = 36000 / 36 = 1000

Option C is true since ( 36000 - 10000 ) $ 26000

Option D is true since expenses reduce equity.

Option E is false since the correct statement is :- The monthly entry to record insurance expense will include a $1,000 debit to Insurance Expense