At the beginning of the year, Prepaid Insurance had a balance of $6,500. At the end of the year the balance in Prepaid Insurance was $7,900. Insurance Expense as reported on the income statement was $49,500. Payments for insurance during the year amounted to:

Question

Quizplus · Accepted Answer

The increase in Prepaid Insurance balance is due to the fact that insurance expenses were paid in advance, which means that $7,900 - $6,500 = $1,400 of insurance was used during the year. Therefore, the actual payment for insurance during the year would be:

Insurance Expense + Decrease in Prepaid Insurance 
or
Insurance Expense - Increase in Prepaid Insurance

$49,500 - $1,400 = $50,900

So the payment for insurance during the year was $50,900.

Option B is the correct answer.

At the Beginning of the Year, Prepaid Insurance Had a Balance