Question

Fina Corp. had the following transactions during the quarter ended March 31, 2018: Payment of fire insurance premium for calendar year 2018 800,000 What amount should be included in Fina's income statement for the quarter ended March 31, 2018?

Answer 1

$200,000

Step-by-step explanation:

When a company prepays for a service, the amount prepaid is recognized as an asset until the service is enjoyed (usually with the passing of time).

This is recorded as follows

Dr Prepaid expense

Cr Cash account

Being entries to recognize amount prepaid.

As the service is enjoyed,

Dr Expense

Cr Prepaid expense

Being entries to recognize expense incurred.

Since 800,00 was the amount prepaid for the calendar year 2018, by 31 March 2018, the amount used up (to be recognized as expense in the income statement) will be

3/12 * $800,000

= $200,000