On March 1,20A,the premium on a two-year insurance policy on equipment was paid amounting to $1,800.At the end of 20A (end of the accounting period),the financial statements for 20A,would report which of the following?

Question

Quizplus · Accepted Answer

Insurance expense is recognized over the life of the policy. Since the policy was purchased on March 1, 20A, and the accounting period ends on December 31, 20A, 10 months of insurance coverage has been used. Therefore, insurance expense for 20A is $1,800 * 10/24 = $750. Prepaid insurance is the remaining amount of the premium that has not yet been recognized as expense, which is $1,800 - $750 = $1,050.

On March 1,20A,the Premium on a Two-Year Insurance Policy on Equipment