On April 1, Year 1, Colonial Bookstore bought an insurance policy costing $24,000 that would insure the retail building for two years against fire loss.What asset account and what amount are recorded on the balance sheet at December 31, Year 1?
A)Prepaid Insurance, $15,000
B)Insurance Expense, $15,000
C)Prepaid Insurance, $9,000
D)Insurance Expense, $9,000
E)Prepaid Insurance, $12,000

Question

Quizplus · Accepted Answer

The insurance policy covers two years, costing $24,000. By December 31, Year 1, 9 months have passed, so $9,000 of the insurance has been used (24,000/24 months * 9 months). The remaining $15,000 is recorded as Prepaid Insurance.

On April 1, Year 1, Colonial Bookstore Bought an Insurance