Question

On May 1, a two-year insurance policy was purchased for $26,400 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?
a. $1,800.

b. $12,600.

c. $14,400.

d. $16,200.

e. $43,200.

Answer 1

Answer:

$8,800

Explanation:

Calculation for What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31

First step is to calculate insurance amount per year

Insurance=$26,400/2 years

Insurance= 13,200

Second step is to calculate the insurance value per months

Insurance value=13,200/12 months

Insurance value=1,100

Now let calculate insurance expense

Insurance expense =$1,100 x 8 months

Insurance expense = $8,800

Note that May 1 to December 31 will give us 8 months

Therefore the amount of insurance expense that would appear on the company's income statement for the first year ended December 31 will be $8,800