Question

On October 1, 2019, Oscar Company paid $1,800 cash for a one-year insurance policy on a...

On October 1, 2019, Oscar Company paid $1,800 cash for a one-year insurance policy on a truck used in the business for making deliveries. The insurance policy will be effective until September 30th, 2020. At December 31st, 2019, the prepaid asset related to this insurance policy will be

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Answer #1

Answer:

The prepaid asset as on December 31st, 2019 related to insurance policy = $1,350

Calculation:

$1,800 (cash for insurance policy) paid on October 1st, 2019. This will be effective untill 30th September 2020.

So, the policy will be effective for 12 months.

From October 1st 2019 to December 31st 2019, there are three months. So, this three months' insurance will be expired on December 31st 2019.

Expired amount of insurance policy as on December 31st 2019 = $1,800 * 3/12 = $450

Unexpired amount of insurance policy = $1,800 - $450 = $1,350

The whole amount of insurance policy is already paid on 1st October 2019. So, the prepaid asset(unexpired amount of insurance policy) related to insurance policy at 31st December 2019 wil be $1,350.

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