Violetta's Violins purchases a fire insurance policy for her storefront on August 1st, Year 1. The...

Violetta's Violins purchases a fire insurance policy for her storefront on August 1st, Year 1. The policy lasts two years, ending on July 31st, Year 3. The policy costs a total of $12,000, which Violetta pays in full up front. Assume Violetta records adjusting entries at the end of each month. Answer the following questions regarding Violetta's Year 2 financial statements ending on 12/31: How much Prepaid Insurance will show up on Violetta's Year 2 Balance Sheet? How much Insurance Payable will show up on Violetta's Year 2 Balance Sheet? How much Insurance Expense will show up on Violetta's Year 2 Income Statement

Expert Solution

Monthly insurance expired [2 year = 24 months] (12000/24)	500

Prepaid insurance on August 1st, Year 1	12,000
Less: Insurance expired [Aug to Dec = 5 months] (500*5)	2,500
Prepaid insurance on December 31st, Year 1	9,500

Prepaid insurance on December 31st, Year 1	9,500
Less: Insurance expired [Jan to Dec = 12 months] (500*12)	6,000
Prepaid insurance on December 31st, Year 2	3,500
Prepaid Insurance will show up on Violetta's Year 2 Balance Sheet	3,500

There is no insurance payable.	0
Insurance Payable will show up on Violetta's Year 2 Balance Sheet	0

*Insurance expired during year 2 [Jan to Dec = 12 months] (50012)**	6,000
Insurance Expense will show up on Violetta's Year 2 Income Statement	6,000

ekkarill92 answered 2 years ago

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