Nagel Co.'s prepaid insurance was $95,000 at December 31, 2015 and $45,000 at December 31, 2014. Insurance expense was $31,000 for 2015 and $27,000 for 2014. What amount of cash disbursements for insurance would be reported in Nagel's 2015 net cash provided by operating activities presented on a direct basis?

Question

Quizplus · Accepted Answer

To calculate cash disbursements for insurance, we need to determine how much of the prepaid insurance balance at the beginning of the year ($45,000) was used up during the year and subtract it from the total insurance expense for the year. 
Prepaid insurance used up = Beginning prepaid insurance balance - Ending prepaid insurance balance = $45,000 - $95,000 = $50,000 
Cash disbursements for insurance = Insurance expense - Decrease in prepaid insurance = $31,000 - $50,000 = -$19,000 
Since there was a decrease in prepaid insurance, we need to add this amount to the cash disbursements for insurance to get the net cash provided by operating activities. 
Net cash provided by operating activities = Cash disbursements for insurance + Insurance expense = -$19,000 + $31,000 = $12,000 
Therefore, the correct answer is B, $81,000.

Nagel Co's Prepaid Insurance Was $95,000 at December 31, 2015 and and $45,000