Park has life insurance policies on its officers' lives.Annual premiums amount to $5, 000.At the end of 2010, cash surrender value of the policies totaled $18, 200.Dividends received by Park from the insurance company amounted to $500 in 2010.The insurance expense recognized by Park in 2010 was $3, 500.What was the amount of cash surrender value of these policies on January 1, 2010?

Question

Quizplus · Accepted Answer

The cash surrender value at the beginning of the year can be calculated by subtracting the net increase in cash surrender value from the ending cash surrender value. The net increase is the difference between the insurance expense recognized ($3,500) and the dividends received ($500), which is $3,000. Therefore, the cash surrender value at the beginning of the year was $18,200 (ending value) - $3,000 (net increase) = $15,200. However, this calculation was incorrect. The correct calculation should consider the annual premiums and how they affect the cash surrender value. The correct initial step is to adjust the ending cash surrender value by adding back the insurance expense recognized and subtracting both the annual premiums and dividends received to find the starting cash surrender value.

Park Has Life Insurance Policies on Its Officers' Lives