Question

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

Answer 1

Premium paid on			July 1
Period covered by premium			one year or 12 months
Period expired in year ended December 31			6 Months	(From July 1 to december 31)
Amount paid for 12 months			$       2,400
Insurance expense during the year			=	$    2,400	x 6/12	=	$    1,200
Thus, Insurance expense on the annual income statement will be					$    1,200