Question

31st, 2014, a four-year insurance policy was purchased with a cash payment of $60,000. Coverage began immediately. 37. What is the amount of insurance expense that would be reported on the income statement for the year ended December 31, 2014

Answer 1

Answer:

$11,250

Explanation:

The amount of insurance expense that would be reported on the income statement for the year ended December 31, 2014

1. Since a four year policy was purchased for $60,000 it will have to be amortized yearly to get the annual figure for insurance expense

2. The amount is also apportioned to take note of the number of months that elapsed in the first year.

Therefore if the four-year insurance policy was purchased on March 31st (Since the month is omitted in the question) then the insurance expense will be for the remaining 9 months in 2014.

Hence insurance expense will be [9 months (April to Dec 2014) / 12 months in a year] x (Insurance  amount / 4 years) = $11,250