Eve's Apples opened business on January 1,2016,and paid for two insurance policies effective that date.The liability policy was $36,000 for 18 months,and the crop damage policy was $12,000 for a two-year term.What is the balance in Eve's prepaid insurance as of December 31,2016?
A)$ 9,000.
B)$18,000.
C)$30,000.
D)$48,000.

Question

Quizplus · Accepted Answer

The liability policy covers for 18 months, so it will expire on June 30, 2017. By the end of the year, only 12 months have passed, so the prepaid insurance balance for this policy is:

$36,000 / 18 months = $2,000 per month
$2,000 x 12 months = $24,000 prepaid insurance as of December 31, 2016

The crop damage policy covers for two years, so it will expire on December 31, 2017. By the end of the year, only one year has passed, so the prepaid insurance balance for this policy is:

$12,000 / 2 years = $6,000 per year
$6,000 x 1 year = $6,000 prepaid insurance as of December 31, 2016

Therefore, the total prepaid insurance balance as of December 31, 2016 is:

$24,000 + $6,000 = $30,000

Option (B) is the correct answer.

Eve's Apples Opened Business on January 1,2016,and Paid for Two