Question

Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should Sensible report as a current liability for Unearned Insurance Revenue at December 31? $0 $13,500 $4,500 $18,000

Answer 1

$4,500

Step-by-step explanation:

For computing the amount, first we have to determine the monthly collection which is shown below:

= Premium collected ÷ total number of months in a year

= $18,000 ÷ 12 months

= $1,500

From April 1 to December 31, the company has earned the premium i.e for 9 months which equals to

= $1,500 × 9 months

= $13,500

Now the remaining 3 months would be reported as a current liability for Unearned insurance revenue

= $18,000 - $13,500

= $4,500

or

= $1,500 × 3 months

= $4,500