On May 1, 2014, a firm purchased a 1-year insurance policy for $3,600 and paid the full premium in advance. The insurance expense associated with this policy for the year ending December 31, 2014, is

Question

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The insurance policy covers a period of one year, from May 1, 2014, to April 30, 2015, and the firm paid the full premium in advance. Therefore, the insurance expense associated with this policy for the year ending December 31, 2014, would be the portion of the premium that covers the period from May 1, 2014, to December 31, 2014, which is 8 months.

To calculate this expense, we can use the following formula:

Expense = (Number of months covered/Total number of months) x Total premium 
Expense = (8/12) x $3,600 
Expense = $2,400

Therefore, the answer is B) $2,400.

On May 1, 2014, a Firm Purchased a 1-Year Insurance