A 20-month insurance policy was purchased for $1,500 on May 1.How much insurance will be expensed on December 31?

Question

Quizplus · Accepted Answer

The insurance policy was purchased on May 1, so it covers the period from May 1 to December 31, which is a duration of 8 months. To calculate the insurance expense for December 31, we need to find the portion of the policy that has already been used up by then.

Since the policy was for 20 months and we are only 8 months into it, we can calculate the fraction of the policy that has been used up as:

Fraction used up = 8/20 = 2/5

To find the insurance expense for December 31, we need to multiply the total cost of the policy by this fraction:

Expense on Dec 31 = $1,500 x 2/5 = $600

Therefore, the correct answer is D.

A 20-Month Insurance Policy Was Purchased for $1,500 on May