Final answer:
At the end of 2021, the insurance expense should be reported as $750, and the prepaid insurance should be reported as $1,050. This is calculated based on the amount of the annual premium that applies to the year 2021, which covers the 10 months from March to December.
Step-by-step explanation:
To determine the correct amount to be reported for insurance expense and prepaid insurance at the end of the accounting period (December 31, 2021), we need to calculate the portion of the insurance premium that applies to the current year. The total premium paid was $1,800 for a two-year policy, starting March 1, 2021. This means that for the year 2021, there are 10 months of coverage (March through December), which is ⅗ of the two-year period.
To calculate the insurance expense for 2021, we divide the $1,800 premium by 24 months (2 years) to determine the monthly expense, which is $75 per month. Then, we multiply the monthly expense by 10 months (March to December) to find the total insurance expense for 2021:
$75 x 10 = $750.
The remaining balance of the premium, which covers the insurance for the next 14 months (January 2022 through February 2023), is considered prepaid insurance, a current asset on the balance sheet. To calculate this, we subtract the $750 expense from the $1,800 total premium, yielding $1,800 - $750 = $1,050 in prepaid insurance.
The correct answer for how much should be reported for insurance expense and prepaid insurance at the end of 2021 is Insurance expense $750, Prepaid insurance $1,050, which corresponds to option B).