Campbell County uses the consumption method to record all inventories and prepayments.The County has a 9/30 fiscal year-end.On April 1, 2011, the County purchased a two-year insurance policy at a total cost of $400,000, paying for the policy out of the General Fund.In the fund financial statements, the amount of insurance expenditures for the fiscal year ended 9/30/11 would be
A)$400,000.
B)$300,000.
C)$200,000.
D)$100,000.

Question

Quizplus · Accepted Answer

Since Campbell County uses the consumption method for prepayments, the insurance expenditures for the fiscal year ended 9/30/11 would be the portion of the two-year policy that was consumed during that fiscal year. Since the policy was purchased on April 1, 2011, there are 6 months remaining in the fiscal year. Therefore, the insurance expenditures for the year would be $400,000/24 months x 6 months = $100,000.

Campbell County Uses the Consumption Method to Record All Inventories