JAFCO,Inc.reported insurance expense of $137,000,prepaid insurance of $8,300 at the beginning of the year,and prepaid insurance of $5,600 at the end of the year.Cash payments for insurance during the year were:
A)$134,300
B)$137,000
C)$139,700
D)$142,600

Question

Quizplus · Accepted Answer

The cash payments for insurance can be calculated by adjusting the reported insurance expense for the change in prepaid insurance. The beginning prepaid insurance was $8,300 and the end was $5,600, indicating a decrease of $2,700 ($8,300 - $5,600). To find the cash payments, add this decrease to the reported insurance expense: $137,000 + $2,700 = $139,700. However, since the decrease in prepaid insurance actually means less was paid in cash than the expense recognized, we need to subtract this amount from the expense, not add it. Therefore, the correct calculation is $137,000 - $2,700 = $134,300.

JAFCO,Increported Insurance Expense of $137,000,prepaid Insurance of $8,300 at the Beginning