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A company makes a payment of $4,680 towards one-year insurance premium on March 1. Calculate the amount of prepaid insurance that should be reported on the August 31 balance sheet with respect to this
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14 votes
14 votes
A company makes a payment of $4,680 towards one-year insurance premium on March 1. Calculate the amount of prepaid insurance that should be reported on the August 31 balance sheet with respect to this policy.

User COil
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1 Answer

17 votes
17 votes

Answer: $2,340

Step-by-step explanation:

The total annual insurance is $4,680. This is prepaid insurance however and will need to be apportioned to months within the year in order to be recognized as an expense as the months go by.

The monthly insurance will be:

= 4,680 / 12 months

= $390

From March 1 to August 31 is 6 months. Total insurance recognized will be:

= 390 * 6

= $2,340

User Abolfoooud
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