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In: Accounting

Campbell County uses the consumption method to record all inventories and prepayments. The County has a...

Campbell County uses the consumption method to record all inventories and prepayments. The County has a 9/30 fiscal year-end. On April 1, 2007, the County purchased a two-year insurance policy at a total cost of $400,000, paying for the policy out of the General Fund. In the fund financial statements, the amount of insurance expenditures for the fiscal year ended 9/30/07 would be

$400,000.00

$300,000.00

$200,000.00

$100,000.00

WHY?

Solutions

Expert Solution

Ans :(D) $ 100,000

Explanation:

Two year (24 month) insurance policy $ 400,000 it is a prepaid insurance.

As per accounting matching principles, only those revenue and expenses are recorded in the accounting period which are actully incurred in the period.

Policy was purchased on April 1 2007 and year ends at 9/30(september,2007)

So we need to record expense for 6 month only.(Apr- Sep)

= 400000* 6/24

= $100000

ekkarill92 answered 2 years ago
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