On April 1, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the year ended December 31?
A) $1,350.00.
B) $450.00.
C) $1,012.50.
D) $337.50.
E) $37.50.

Question

Quizplus · Accepted Answer

The insurance policy covers three years, so the total premium paid of $1,350 will be allocated over three years. To find the insurance expense for the year ended December 31, we need to calculate the portion of the premium that applies to that year.

Since the policy started on April 1 and ended on December 31, there are 9 months remaining in the first year. Therefore, the insurance expense for this year will be:

($1,350 / 3 years) x (9 months / 12 months) = $337.50

Thus, the insurance expense on the annual income statement for the year ended December 31 will be $337.50.

On April 1, a Company Paid the $1,350 Premium on a Three-Year