Blue Chip Investments purchased an 12-month insurance policy on May 31, 2022 for $3,480. The December 31, 2022 balance sheet would report Prepaid Insurance of

Question

Quizplus · Accepted Answer

The 12-month insurance policy purchased on May 31, 2022 covers the period from May 31, 2022 to May 31, 2023. By December 31, 2022, six months of insurance coverage would have already been used up. Therefore, the amount of prepaid insurance as at December 31, 2022 would be for six months only, which can be calculated as follows:

Total cost of insurance for 12 months = $3,480
Cost of insurance for 6 months = $3,480/12 * 6 = $1,740

Therefore, the December 31, 2022 balance sheet would report Prepaid Insurance of $1,450 ($3,480 - $1,740). Therefore, the correct answer is C.

Blue Chip Investments Purchased an 12-Month Insurance Policy on May