Question

On October 1 of Year 1 Lesikar Company paid $1,200 cash for an insurance policy that would provide protection for a one year term. The company's fiscal closing date is December 31. Based on this information, the amount of prepaid insurance appearing on the Year 1 balance sheet would be

Answer 1

The prepaid insurance amount appearing on the Year 1 balance sheet would be $300.

Step-by-step explanation:

The amount of prepaid insurance appearing on the Year 1 balance sheet can be calculated by determining the portion of the insurance policy that has been used up during Year 1. Since Lesikar Company's fiscal closing date is December 31, there are three months remaining in the insurance policy. Therefore, the prepaid insurance amount would be calculated as follows:

Amount Paid for Insurance / Term of Insurance * Remaining Months

$1,200 / 12 months * 3 months = $300

Thus, the prepaid insurance amount appearing on the Year 1 balance sheet would be $300.