On April 1,a $4,800 premium on a one-year insurance policy on equipment was paid and charged to Prepaid Insurance.At the end of the year,the financial statements would report:

Question

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At the end of the year, a portion of the insurance premium will have expired and will be recognized as Insurance Expense. The amount of the expense will be $4,800/12 months = $400 per month. Since the policy was purchased on April 1, there are 9 months left in the year (April to December). Therefore, the amount of the insurance expense for the year will be 9 months x $400/month = $3,600. The remaining portion of the premium, $4,800 - $3,600 = $1,200, will be reported as Prepaid Insurance on the balance sheet. Therefore, the correct answer is B) Insurance Expense, $3,600; Prepaid Insurance $1,200.

On April 1,a $4,800 Premium on a One-Year Insurance Policy