Question

Eve's Apples opened its business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What is the balance in Eve's prepaid insurance as of December 31, 2018? a. $30,000 b. $48,000 c. $18,000 d. $9,000

Answer 1

Answer:

c. $18,000

Explanation:

The liability policy costs $2,000 per month ($36,000 / 18)

And the crop damage policy costs $500 per month ($12,000 / 24)

The total pre paid insurance is = $36,000 + $12,000 = $48,000

By December, 12 months have passed, therefore, the total insurance expense is:

$2,000 x 12 = $24,000 for the liablity policy

$500 * 12 = $600 for the crop damage policy

Bringing the total to = $24,000 + $6,000 = $30,000

We now substract this quantity from the initial amount to obtain the balance:

Balance of prepaid insurance December 2018 = $48,000 - $30,000

                                                                              = $18,000