Final answer:
The balance in Justin's Prepaid Insurance account on December 31, 2018, is $60,000. This is calculated by determining the monthly insurance cost and then subtracting the expired portion (12 months' worth) from the total policy cost.
Step-by-step explanation:
The question pertains to the calculation of the balance in Justin's Prepaid Insurance account as of December 31, 2018. Justin's Crops paid $180,000 for an insurance policy that is effective for eighteen months starting January 1, 2018. To determine the balance in the Prepaid Insurance account at the end of the year, we must calculate the amount of the insurance cost that has been used up (expired) and the amount that remains unexpired.
Since the total cost of the insurance policy is for eighteen months, we first find the monthly cost by dividing the total cost by the number of months:
$180,000 รท 18 months = $10,000 per month
Since the policy started on January 1, 2018, and we are calculating the balance as of December 31, 2018, twelve months of the insurance have expired:
12 months x $10,000 per month = $120,000
Therefore, the expired portion of the insurance, or the insurance expense for Justin's Crops for the year 2018, is $120,000. To find out the remaining balance in the Prepaid Insurance account, we subtract the expired insurance from the total cost of the policy:
$180,000 - $120,000 = $60,000
So, the balance in the Justin's Prepaid Insurance account as of December 31, 2018, is $60,000. This represents the unexpired portion of the insurance policy that will be carried over to the next accounting period.