On 1 July 2014 Tan Traders paid $600, representing a two-year insurance premium. The $600 was initially recorded in the Insurance expense account. After adjustment at 31 December 2015, the close of the annual accounting period:
A) insurance expense in the income statement is $600 and prepaid insurance in the balance sheet is $0.
B) insurance expense in the income statement is $150 and prepaid insurance in the balance sheet is $450.
C) insurance expense in the income statement is $450 and prepaid insurance in the balance sheet is $0.
D) insurance expense in the income statement is $300 and prepaid insurance in the balance sheet is $150.

Question

Quizplus · Accepted Answer

The insurance premium covers a two-year period from 1 July 2014 to 30 June 2016. By 31 December 2015, 18 months of the insurance have been used, equating to $450 ($600/24 months * 18 months), leaving 6 months or $150 ($600/24 months * 6 months) as prepaid insurance. Therefore, the insurance expense for the period is $450, and the prepaid insurance is $150.

On 1 July 2014 Tan Traders Paid $600, Representing a Two-Year