Question

Eve's Apples opened business on January 1, 2016, 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, 2016?

Answer 1

Answer:

The balance in Eve's prepaid insurance as of December 31, 2016 is $18,000

Explanation:

The computation of the balance of prepaid insurance is shown below:

= Per month policy one amount × total number of months in a year + Per month policy one amount × total number of months in a year

where,

Per month liability policy  amount  = Insurance amount ÷ given months

                                                   = $36,000 ÷ 18 months

                                                   = $2,000

Per month crop damage policy  amount  = Insurance amount ÷ given months

                                                   = $12,000 ÷ 24 months

                                                   = $500

Now put these values to the above equation

So, the value would equal to

= ($2,000 × 12 months) ÷ 12 months + $500 × 12 months

= $12,000 + $6,000

= $18,000

For computing the December 2016, we divided the 12 months from the liability policy