Question

A county uses the consumption method in accounting for insurance premium prepayments. At the beginning of the fiscal year, the county paid a $24,000 insurance premium to cover the current year and the subsequent fiscal year. At the end of the current year, the county will report in its General Fund Expenditures of $24,000 Expenditures of $12,000 and a $12,000 prepaid asset A $24,000 prepaid asset Other financing use of $24,000

Answer 1

Answer:

Expenditures of $12,000 and a $12,000 prepaid asset

Explanation:

Since only half of the policy has been consumed (or accrued), then half of the premium must debited to expenditures, which is similar to debiting insurance expenses on a private company. Since half of the prepaid insurance asset has been used during this year, the account must be reduced by crediting it (same as recording for a private business).