Murphy, Inc. prepaid $9,600 on October 1, 2018 for a one-year insurance premium. Coverage begins October 1. On January 1, 2019 (after December 31 adjustments), the Prepaid Insurance account will have a debit balance of ________. (Round any intermediate calculations to two decimal places, and your final answer to the nearest whole number.)

Question

Quizplus · Accepted Answer

The insurance premium paid on October 1, 2018 covers a one-year period, from October 1, 2018, to September 30, 2019. As of January 1, 2019, only 3 months have elapsed (October, November, and December), leaving 9 months of coverage remaining.

To determine the amount of prepaid insurance that is still unexpired as of January 1, 2019, we need to multiply the monthly cost of the insurance by the number of months remaining:

Monthly cost = $9,600 / 12 months = $800 per month
Unexpired insurance as of January 1, 2019 = $800/month × 9 months = $7,200

Therefore, the Prepaid Insurance account will have a debit balance of $7,200 as of January 1, 2019. The correct answer is D.