On August 1, a company paid the $2,400 premium on a one-year insurance policy with benefits...

On August 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will the balance be in the Prepaid Insurance account on the Balance Sheet for the current year ended December 31?

Select one:

A. $1,000.

B. $2,400.

C. $1,400.

D. $400.

E. $1,200.

Expert Solution

Insurance premium paid on August 1 of current year.

Current year ending with December.

No. of months pertaining to current year are 5 months ( August, September, October, November and December ).

Premium paid for one year. Insurance premium prepaid for 7 months ( insurance premium paid for 12months - No. of months pertaining to current year is 5 months )

So, Prepaid insurance is $ 1,400 [ ( $ 2,400 / 12 months ) x 7 months ]

So, Answer is option C $ 1,400.

ekkarill92 answered 2 years ago

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