On July 1,Gabriel Company paid 6 months' insurance in advance.The policy covers the period of July 1 through December 31.The total payment was $5,400.At the time of the payment,the company set up the Prepaid Insurance account for $5,400.What is the balance in the Prepaid Insurance account on September 30?

Question

Quizplus · Accepted Answer

The Prepaid Insurance account represents insurance that has been paid in advance but not yet used. Since the policy covers the period from July 1 through December 31 (6 months), the portion of the insurance that has been used from July 1 to September 30 is 3 months (or half of the 6-month policy period).

To find the balance in the Prepaid Insurance account on September 30, we need to determine the amount of insurance that has not yet been used. Since half of the policy period has passed, half of the total payment ($5,400/2 = $2,700) has been used up, leaving a balance of $2,700 (Choice C) in the Prepaid Insurance account on September 30.

On July 1,Gabriel Company Paid 6 Months' Insurance in Advance