A company paid the $1,350 premium on a three-year insurance policy on April 1, 2015.The policy gave protection beginning on that date. How many dollars of the premium will appear as an expense on the calendar year 2015 income statement assuming the accrual basis of accounting? Assuming the cash basis of accounting?
A)$450 accrual basis; $450 cash basis.
B)$1,350 accrual basis; $1,350 cash basis.
C)$337.50 accrual basis; $1,350 cash basis.
D)$1,012.50 accrual basis; $1,350 cash basis.
E)$1,350 accrual basis; $337.50 cash basis.

Question

Quizplus · Accepted Answer

Under the accrual basis, only the portion of the premium that applies to the current year is expensed, which is $337.50 for 2015 (9 months of the year). Under the cash basis, the entire premium paid is expensed in the year it is paid, which is $1,350.

A Company Paid the $1,350 Premium on a Three-Year Insurance