Eve's Apples opened for business on January 1,2012,and paid for two insurance policies effective that date.The liability policy was $36,000 for eighteen-months,and the crop damage policy was $12,000 for a two-year term.What was the balance in Eve's Prepaid Insurance account as of December 31,2012?

Question

Quizplus · Accepted Answer

The liability policy was for eighteen months, which means it would expire on June 30, 2013. As of December 31, 2012, six months have passed since the policy began, so the prepaid insurance balance for the liability policy would be $18,000 ($36,000/18 months x 6 months used = $18,000).

The crop damage policy was for a two-year term, which means it would expire on December 31, 2013. As of December 31, 2012, one year has passed since the policy began, so the prepaid insurance balance for the crop damage policy would be $6,000 ($12,000/2 years x 1 year used = $6,000).

Adding these two amounts together, the balance in Eve's Prepaid Insurance account as of December 31, 2012 would be $24,000 ($18,000 + $6,000 = $24,000).

Eve's Apples Opened for Business on January 1,2012,and Paid for Two