A corporation paid a six-year insurance premium on January 1, year 1, for $12,000. It recorded the prepayment in two asset accounts--one with a $2,000 debit balance and one with a $10,000 debit balance. Under which of the following captions should the account be with the $10,000 balance be classified on a balance sheet dated January 1, year 1?

Question

Quizplus · Accepted Answer

The account with the $10,000 debit balance should be classified under "Deferred charges" because it represents a prepayment for insurance which provides future economic benefits beyond the current accounting period.

A Corporation Paid a Six-Year Insurance Premium on January 1