On January 1, 2014, Ryan Company paid the premium on a three-year insurance policy in the amount of $6,000. At that time, the full amount paid was recorded as prepaid insurance. After recording the adjusting entry for the insurance policy on December 31, 2014, what would be the balance in Ryan Company's prepaid insurance account?

Question

Quizplus · Accepted Answer

The insurance policy covers three years, so each year $2,000 of the prepaid insurance is used up ($6,000 / 3 years). After one year, $2,000 is expensed, leaving a balance of $4,000 in the prepaid insurance account.

On January 1, 2014, Ryan Company Paid the Premium on a Three-Year