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29 August, 06:01

ABC opened for business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $54,000 for 18 months, and the crop damage policy was $18,000 for a two-year term. What was the balance in ABC's Prepaid Insurance account as of December 31, 2018

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  1. 29 August, 09:10
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    The balance in ABC's Prepaid insurance-account as on Dec 31, 2018 is $27,000

    Explanation:

    Liability policy = ($54,000 / 18) * 6 months

    Liability policy = $18,000

    Crop damage policy = ($18,000 x 12 / 24)

    Crop damage policy = $9,000

    ABC's Prepaid insurance-account balance as on Dec 31, 2018 = $27,000

    Thus,

    Total Liability insurance period = 18

    Now,

    Expired period period - 12 months (Jan 1, 2016 to Dec 31, 2016)

    Unexpired period = (18 - 12) months = 6 months
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