On April 1, Bear, Inc. paid $2,400 for an insurance premium on a three-year insurance policy. At the end of December, Bear's fiscal year-end, what should be the balance in the prepaid insurance account?

Question

Quizplus · Accepted Answer

Since the policy is for three years, the yearly premium would be $800 ($2,400 / 3). Since Bear only used a portion of their insurance coverage for the year, the balance in the prepaid insurance account at the end of the year would be $800 x 2 = $1,600. Therefore, the correct answer is D) $1,800, which is the initial payment of $2,400 minus the balance of $1,600.