Question

Eve's Apples opened for business on January 1, 2012, and paid for two insurance policies effective that date. The liability policy was $36,000 for eighteen-months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's Prepaid Insurance account as of December 31, 2012

Answer 1

$18,000

Step-by-step explanation:

Since the two insurance polices are for 18 months and 2 years respectively, at $36,000 and $12,000 each, we can deduce that by the 31st of December, 2012 a year each has been off the policies.

By that, we can simply deduce that for the $36,000 liability policy, its monthly rate is $2,000 ($36,000 ÷ 18). Same can be said for the crop damage plan at $12,000 for 2 years. If a year is off the plan, the 2nd year is worth $6,000 ($12,000 ÷ 2).

Therefore, from the liability policy, we have $12,000 left for the 6 months left on the plan while we have $6,000 on the crop damage plan for the next year 2013.

Adding both remainders gives $12,000 + $6,000 = $18,000

Cheers.