Question

On March 1, a business paid $3,840 for a twelve-month liability insurance policy. On April 1, the business entered into a two-year rental contract for equipment at a total cost of $23,160.
A) Determine the insurance expense for the month of March.
B) Determine the balance in prepaid insurance as of March 31.
C) Determine the equipment rent expense for the month of April.
D) Determine the balance in prepaid equipment rental as of April 30.

Answer 1

Answer:

a. Insurance expense for the month of march

= ($3,840 / 12 months) * 1 month

= $320 per month

b. Balance in prepaid insurance as of March 31

= ($3,840 / 12 months) *11 months remaining

= $3,520

c. Equipment rent expense for the month of April

= ($23,160 / 24 months) * 1 month

= $965

d. Balance in prepaid equipment rental as of April 30

= Nil ($0) as it is not mentioned that payment has been made, it is only mentioned that two year rental contract has been entered into.