At 1 January, Smith has a beginning balance in Prepaid insurance expense of $1 200. Smith pays insurance premiums once a year, and his total premium is $4 800. As of the end of February, the balance in prepaid insurance is $2 000.

Question

Quizplus · Accepted Answer

The balance in prepaid insurance should be $3,200 at the end of February, not $2,000. The annual premium is $4,800, so the monthly expense is $400. After two months, $800 should be expensed, leaving $3,200 in prepaid insurance.

At 1 January, Smith Has a Beginning Balance in Prepaid