On March 1, 20X1, the premium on a two-year insurance policy on equipment was paid amounting to $1,800. At the end of 20X1 (end of the accounting period), the ﬁnancial statements for 20X1, would report which of the following?

Question

Quizplus · Accepted Answer

Insurance expense is recognized over the life of the policy. Since the policy is for two years and the premium was paid on March 1, 20X1, 10 months of insurance coverage is provided in 20X1. Therefore, insurance expense for 20X1 is $1,800 x 10/24 = $750. Prepaid insurance is the remaining amount of the premium that has not yet been recognized as expense, which is $1,800 - $750 = $1,050.

On March 1, 20X1, the Premium on a Two-Year Insurance