Question

Ridgewood Company had the following ending balances on its financial statements: 2018 2019 2020 Prepaid insurance $1,400 $ 900 $1,100 Insurance expense $12,500 $12,800 $12,600 How much did Ridgewood pay for insurance during 2019? A $10,700 B $12,300 C $10,900 D $12,100

Answer 1

Answer:

B $12,300

Explanation:

Note that the movements in the prepaid insurance account balance is as a result of payments and amortization of these expenses as they fall due. While additional payments increases the prepaid insurance balance, amortization reduces it.

Given that the ending balance in the Prepaid insurance account for 2018 is  $1,400. This is the opening balance for prepaid insurance in 2019. Given that the insurance expense for 2019 is $12,800 and the ending balance in the Prepaid insurance account for 2019 is $900

Let the amount paid in 2019 be r

Then

$1,400 + r - $12,800 = $900

r = $900 + $12,800 - $1,400

r = $12,300

The right answer is B $12,300