Question

On April 1, a company paid the $2,550 premium on a three-year insurance policy with benefits beginning on that date. What amount of the insurance expense will be reported on the annual income statement for the year ended December 31?

Answer 1

Insurance paid = $ 2,550 for 3 years.

Date of payment = April 1.

So upto December 31, there are 9 months. So the expense upto this date is,

Insurance expense per year = 2,550/3

Insurance expense per year = $ 850 per year.

Insurance expense for 9 months = ( 850/12) x 9

Insurance expense for 9 months = $ 637.50

So the answer is $ 637.50

SUMMARY:

The amount of insurance expense that should be reported on the income statement for the year ended December 31 is $ 637.50.

Hence, $ 637.50 is the correct answer.