Clean Sweep,Inc.paid $7,200 on May 1,2011 for 12 months' insurance coverage starting May 1.How much prepaid insurance should appear on the company's balance sheet at December 31,2011?

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Quizplus · Accepted Answer

The insurance coverage is for 12 months, costing $7,200, which is $600 per month ($7,200 / 12 months). From May 1 to December 31 is 8 months, so 8 months of insurance have been used ($600 * 8 = $4,800). The prepaid insurance remaining for 4 months is $2,400 ($600 * 4).