A company paid $9,000 for a twelve-month insurance policy on February 1. The policy coverage began on February 1. On February 28, $750 of insurance expense must be recorded.

Question

Quizplus · Accepted Answer

Since the policy coverage began on February 1, the entire $9,000 amount should be recorded as a prepaid expense as it has not yet been used. However, one month of coverage has passed by February 28, and therefore $750 of the prepaid expense can be recognized as an insurance expense for that month.

A Company Paid $9,000 for a Twelve-Month Insurance Policy on February