Question

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)

Policy Type	Date Acquired	Policy term	Total Premium paid on acquisition	prepaid on 31st Dec
Liability	31-Jan-17	2 years	48000	For 1 year	24000
auto	30-Jun-18	2 years	9000	For 1 year and 6 months	6750
Business interruption	01-Aug-18	1 year	840	For 8 months	560
				Total Adjusted prepaid	31310

2)

Policy Type	Date Acquired	Policy term	Total Premium paid on acquisition	Insurance Expense for year 2018
Liability	31-Jan-17	2 years	48000	For 1 year	24000
auto	30-Jun-18	2 years	9000	For 6 months	2250
Business interruption	01-Aug-18	1 year	840	For 4 months	280
				Total Adjusted Insurance Expense	26530