Question

On April 1. a $4,800 premium on a one-year insurance policy on equipment was paid and charged to Prepaid Insurance end of the annual accounting period, December 31", the financial statements would report:________

a. Insurance Expense, $3,600; Prepaid Insurance $1,200.
b. Insurance Expense, $3,650; Prepaid Insurance $4,800.
c. Insurance Expense, $4,800; Prepaid Insurance $0.
d. Insurance Expense, $1,200; Prepaid Insurance $3,600.

Answer 1

a. Insurance Expense, $3,600; Prepaid Insurance $1,200.

Step-by-step explanation:

The one year insurance policy premium = $4,800

So, the insurance expense for 9 months from April 1 to December 31 would be

= Premium amount × number of months ÷ (total number of months in a year)

= $4,800 × 9 months ÷ 12 months

= $3,600

And, the prepaid insurance would be

= Premium - insurance expense

= $4,800 - $3,600

= $1,200