Hour Place Clock Repair paid $1,800 cash in advance for a one year insurance policy.According to the matching principle,if 4 months of the policy has expired by the balance sheet date,how much should Hour Place Clock Repair report as Prepaid Insurance?
A) $0
B) $600
C) $1,200
D) $1,800

Question

Quizplus · Accepted Answer

The matching principle requires expenses to be matched with revenues. Since 4 months have expired, 8 months remain. The prepaid insurance for the remaining 8 months is $1,200 ($1,800 * 8/12).

Hour Place Clock Repair Paid $1,800 Cash in Advance for a One