On June 1, 2010, Barker Industries purchased a one-year comprehensive insurance policy and paid the annual premium of $12, 000.Which of the following could not result from the acquisition of the insurance coverage on June 1?
A)$7, 000 of insurance expense for the year ended December 31, 2010
B)a $12, 000 debit to Insurance Expense on June 1, 2010
C)$5, 000 of prepaid insurance at December 31, 2010
D)a $12, 000 credit to Prepaid Insurance on June 1, 2010

Question

Quizplus · Accepted Answer

The correct accounting treatment for the purchase of an insurance policy would involve debiting Prepaid Insurance and crediting Cash (or a similar account) for $12,000 on June 1, 2010. A credit to Prepaid Insurance, as suggested in option D, is incorrect because Prepaid Insurance is an asset account that should be increased (debited) when a payment is made for insurance coverage that extends into the future.

On June 1, 2010, Barker Industries Purchased a One-Year Comprehensive