Question

On July 1, a company paid the $600 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

Answer 1

Answer:

$300

Explanation:

When insurance is paid in advance, the entries required are

Debit Prepaid Insurance

Credit Cash account

As time elapses and the insurance expires,

Debit Insurance expense

Credit Prepaid Insurance

Amount of insurance expense as at 31 December (6 months between 1 July and 31 December)

= 6/12 * $600

= $300

The insurance expense on the annual income statement for the first year ended December 31 is $300.