On May 1,a two-year insurance policy was purchased for $18,000 with coverage to begin immediately.What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?
A)$750.
B)$5,270.
C)$6,000.
D)$6,750.
E)$18,000.

Question

Quizplus · Accepted Answer

The insurance expense for the first year is $18,000 * 12/24 = $9,000. However, the policy was purchased on May 1, so the expense for the first year is only for 8 months, or $9,000 * 8/12 = $6,000.

On May 1,a Two-Year Insurance Policy Was Purchased for $18,000