Seavers Company paid $2,700 for 6 months' insurance,covering the period of April 1 to September 30.At the time of the payment,the entire amount was used to increase the balance in the Prepaid Insurance account.The balance in the Prepaid Insurance account on May 31 is ________.

Question

Quizplus · Accepted Answer

The insurance coverage period is from April 1 to September 30, which is a total of 6 months. When the payment of $2,700 was made on April 1, the entire amount was used to increase the balance in the Prepaid Insurance account. Therefore, as of April 30, the prepaid insurance balance is $2,700. However, one month has passed by May 31, which means that one-sixth of the insurance coverage period has elapsed.
One-sixth of $2,700 is $450 (2,700/6 = 450). Therefore, the balance in the prepaid insurance account as of May 31 is $2,700 - $450 = $2,250. Since the question is asking for the balance as of May 31, the correct answer is D) $2,250.

Seavers Company Paid $2,700 for 6 Months' Insurance,covering the Period