Bert's Bungy Jumping, Inc. paid $650,000 cash for casualty insurance during the year 2009. If the income statement for the year reports insurance expense of $620,000:

Question

Quizplus · Accepted Answer

The income statement reports insurance expense of $620,000, which means that this amount was recognized as an expense during the year. However, Bert's Bungy Jumping, Inc. paid $650,000 for casualty insurance in cash during the year, which means that $30,000 of the insurance expense was not yet used and should be recorded as a prepaid insurance asset. Therefore, the prepaid insurance account increased by $30,000 during the year, resulting in choice C being correct.