Final answer:
The correct option is c. ramble Insurance Company should report $12,740 as the current liability for unearned insurance revenue on December 31, which represents 4 months of the premium on an annual policy of $38,220 not yet earned.
Step-by-step explanation:
The subject of this question is a financially-oriented business scenario regarding unearned insurance revenue recognition. The Bramble Insurance Company issue deals with how to account for an insurance premium collected for a 1-year period and the proper current liability reporting at year-end for unearned insurance revenue. Since the insurance was purchased on May 1 and we are calculating the liability on December 31, this covers 8 months of the insurance period. Since insurance is provided over time, we recognize the revenue over the policy term. Therefore, to find the unearned insurance revenue, we need to calculate the amount of premium that has not been 'earned' by the December 31 year-end date.
The total annual premium is $38,220, and the insurance policy covers 12 months. Because 8 months have been 'used' by December 31, we calculate 4 months of unearned premium (4/12 of the annual premium). This calculation leads us to $(38,220 × 4/12) = $12,740, which is the current liability for unearned insurance revenue that Bramble Insurance Company should report on December 31.