On December 31,the balance in the Prepaid Insurance account was $4,500,which is the remaining balance of a 12-month policy purchased on October 31 in the current year.How much did this policy originally cost?

Question

Quizplus · Accepted Answer

Since the policy is for 12 months, and was purchased on October 31st, it means that it covers November and December of the current year, and would then cover January through October of the following year.

Therefore, the policy covers a total of 12 months, starting from November of the current year.

To find out how much the policy originally cost, we can divide the remaining balance ($4,500) by the number of months covered by the policy (10).

$4,500 ÷ 10 = $450/month

Then, to find the original cost of the policy, we can multiply the monthly cost by the total number of months (12):

$450/month x 12 months = $5,400

So, the original cost of the policy was $5,400.

Therefore, the best choice is A) $5,400.

On December 31,the Balance in the Prepaid Insurance Account Was