When Castle Corporation pays insurance premiums, the transaction is recorded as a debit to prepaid insurance. Additional information for the year ended December 31 is as follows: What was the total amount cash paid by Castle for insurance premiums during the year?

Question

Quizplus · Accepted Answer

The total amount of prepaid insurance at the end of the year is $62,500 ($187,500 beginning balance + $350,000 paid - $475,000 ending balance). The cash paid for insurance premiums during the year is the difference between the beginning balance and the ending balance of prepaid insurance plus the premium paid during the year. Thus, the cash paid by Castle for insurance premiums during the year is $227,500 ($187,500 + $350,000 - $62,500). Therefore, the correct answer is option D.

When Castle Corporation Pays Insurance Premiums, the Transaction Is Recorded