On September 1, 2010, Huntley Co. paid $18,000 to renew its insurance policy for the next 12-month period. What amount should be recorded as prepaid insurance in Huntley's December 31, 2010, balance sheet?

Question

Quizplus · Accepted Answer

By December 31, 2010, four months of the insurance policy have been used (September to December), so 8 months remain. The prepaid insurance amount is for the remaining 8 months: ($18,000 / 12 months) * 8 months = $12,000.