Question

Aurora Corporation operated without insurance coverage for the first month of 2018. Then, on February 1, 2018, the company paid the $4,800 premium on a two-year insurance policy with benefits beginning on that date. The company uses the accrual basis. How much insurance expense will be reported on the company's income statement for the year ended December 31, 2018?

Answer 1

$2,200

Step-by-step explanation:

The computation of the insurance expense is shown below:

Given that

Premium on a two-year insurance policy = $4,800

So by considering this, under the accrual basis, the amount of insurance expense is

= Premium on a two-year insurance policy ÷ number of years - Premium on a two-year insurance policy ÷ number of years × number of months ÷ total number of months in a year

= $4,800 ÷ 2 years - $4,800 ÷ 2 years × 1 months ÷ 12 months

= $2,400 - $200

= $2,200

Or we can calculate it for 11 months also