On 1 July 2013, LMZ Traders paid $9,000 in insurance premiums for coverage for the next three years. The insurance expense that will appear in the income report and the amount of prepaid insurance that will appear in the balance sheet for the year ended 30 June 2014 are, respectively:

Question

Quizplus · Accepted Answer

The insurance premium paid on 1 July 2013 covers the next three years. Therefore, the portion of insurance expense that will appear in the income report for the year ended 30 June 2014 is only for one year, which is 1/3 of the total premium paid. So, the insurance expense that will appear in the income report is $9,000/3 = $3,000.

The remaining portion of the premium paid, which is $9,000 - $3,000 = $6,000, is considered as prepaid insurance and will appear in the balance sheet as an asset. So, the amount of prepaid insurance that will appear in the balance sheet for the year ended 30 June 2014 is $6,000.

On 1 July 2013, LMZ Traders Paid $9,000 in Insurance