On April 1, Tenity, Inc.paid $3,300 for an insurance premium on a three-year insurance policy.At the end of December, Tenity's fiscal year-end, what should be the balance in the prepaid insurance account?

Question

Quizplus · Accepted Answer

Since the insurance policy is for three years and Tenity paid $3,300 for the premium, the annual premium would be $1,100 ($3,300 divided by 3). As of December, Tenity would have used up 9 months worth of insurance coverage (January to September), which would be $825 ($1,100 times 9 months). Therefore, the balance in the prepaid insurance account at the end of December would be $2,475 ($3,300 minus $825).