Eve's Apples opened for business on January 1,2015,and paid for two insurance policies effective that date.The liability policy was $36,000 for eighteen-months,and the crop damage policy was $12,000 for a two-year term.What was the balance in Eve's Prepaid Insurance account as of December 31,2015?

Question

Quizplus · Accepted Answer

The liability policy covers eighteen months, so as of December 31, 2015, half of the policy period has expired (i.e., 12 out of 18 months). Thus, the liability insurance has been used up or consumed for $36,000 x 12/18 = $24,000.

The crop damage policy covers two years, so as of December 31, 2015, only one year has expired, leaving one year still to be used up. Thus, the portion of the crop damage insurance that has been used up is $12,000/2 = $6,000.

Therefore, the balance in Eve's Prepaid Insurance account as of December 31, 2015, is $24,000 + $6,000 = $30,000.

Hence, the correct answer is B) $18,000.

Eve's Apples Opened for Business on January 1,2015,and Paid for Two