Question

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The prepaid insurance account has an unadjusted balance of $46,000 at December 31, 2018, the end of Hanson Company's accounting year. Insurance expense has an unadjusted $2,000 balance at the same point in time. Some policies that were in effect have expired. Some of those were renewed and some were not. The following policies are in effect at December 31, 2018:

Policy                                                                 Date                 Policy            Total Premium

  Type                                                               Acquired             Term         Paid when acquired

Liability                                                              1-31-17          2 years         $48,000

Auto                                                                   6-30-18             2 years             9,000

Business interruption 8-1-18              1 year                 840

1. Determine the adjusted balance in prepaid insurance at December 31, 2018.

2.Determine the amount of total insurance expense (you need not separate the expense by policy type) to report on the income statement for the year ended December 31, 2018.

Answer 1

1. Computation of Adjusted balance in Prepaid Insurance at Dec 31, 2018
Policy Type	Date Acquired	Policy Term	Total Premium paid when Acquired (A)	Insurance Expenses Booked in prior Year (B)	To be Booked in Insurance Expense during 2018 ( C )	Adjusted Balance in prepaid insurance on 2018 ( A-B-C)
Liability	31/01/2017	2 Year	$48,000	$46,000	$2,000	$0
Auto	30/06/2018	2 Year	$9,000	$0	$9000/24*6 =$2250	$9000/24*18=$6750
BI	1/8/2018	1 Year	$840	$0	$840/12*7=$490	$840/12*5=$350
Total Insurance			$57,840	$46,000	$4,740	$7,100
2. Statement Showing Insurance expense to be report in Income Statement in Dec 31 2018
Insurance Expense balance			$2,000.00
Insurance Expense adjusted from Prepaid Insurance			$4,470.00
Total Insurance			$6,470.00