If a business pays a 12-month insurance premium of $600 on 1 February 2012,at 30 June 2012 the prepayment will be equal to:

Question

Quizplus · Accepted Answer

A 12-month insurance premium paid on 1 February 2012 will cover the period from 1 February 2012 to 31 January 2013. At 30 June 2012, half of the coverage period has already passed (from 1 February to 30 June), which means that the prepayment should be equal to half of the premium. Therefore, the prepayment at 30 June 2012 is $600/2 = $300. However, as the business has already used up $300 worth of insurance coverage from 1 February to 30 June, the remaining prepayment is $600 - $300 = $300. Therefore, the correct choice is B because this reflects the remaining prepayment at 30 June 2012.

If a Business Pays a 12-Month Insurance Premium of $600