Question

The acquisition expenses for taxes, policy issue, expenses, etc. are $480 for a 1-year policy. If the policy is effective January 1, what amount would be shown on the SAP income statement as acquisition expenses as of January 31st?

Answer 1

The acquisition expenses recognized on the SAP income statement as of January 31st for a 1-year policy with total expenses of $480 are $40. This is calculated by dividing the total expenses by the number of months in a year and recognizing one month's worth of expenses.

Step-by-step explanation:

The acquisition expenses for a 1-year insurance policy total $480, and if the policy is effective from January 1st, we would need to recognize these expenses incrementally over the life of the policy. However, since the question asks for the amount to be shown on the Statutory Accounting Principles (SAP) income statement as of January 31st, we would recognize one month’s worth of expenses.

To calculate this, we divide the total acquisition expenses by the number of months in a year:

$480 ÷ 12 months = $40 per month.

Therefore, as of January 31st, the acquisition expenses that would appear on the SAP income statement would be $40.