Question

On April 1, Tenity, Inc. paid $3,300 for an insurance premium on a three-year insurance policy. At the end of December, Tenity's fiscal year-end, what should be the balance in the prepaid insurance account?

Answer 1

Answer:

Balance of prepaid insurance: $2,475

Explanation:

On April 1, Teneit, Inc shall record the following journal entry in its accounts in respect of insurance premium paid for three years.

                                       Debit                     Credit

Prepaid Insurance          $3,300

Cash                                                             $3,300

At December 31, the following adjusting journal entry shall be recorded in the accounts of Tenity, Inc. in respect of insurance premium expense

                                        Debit                     Credit

Insurance expense          $825

(3,300*9/36)

Prepaid Insurance                                         $825

So based on above two journal entries, the following shall be the balance of the prepaid insurance as at December 31:

Balance of prepaid insurance: $2,475

(3,300-825)