RshaoKh
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Joined: 28 Jul 2009
Online Status: Offline
Posts: 154
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| Posted: 15 Sep 2009 at 11:17 | IP Logged
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CPA-00713
Roro, Inc. paid $7,200 to renew its only insurance policy for 3 years on March 1, 1995, the effective date of the policy. At March 31, 1995, Roro's unadjusted trial balance showed a balance of $300 for prepaid insurance and $7,200 for insurance expense. What amounts should be reported for prepaid insurance and insurance expense in Roro's financial statements for the 3 months ended March 31, 1995?
Answer: Prepaid insurance $7,000 and Insurance expense $500
I'm not sure what's going on here.... I know that the new insurance policy should be expensed for $200 since 1 month has expired of the total 36 months. That would mean 200 expense and 7,000 left in prepaid. Why does the answer include the $300 unadjusted balance in prepaid insurance? The problem doesn't indicate whether or not we even "used" up the $300 of prepaid or if we even used the full 300....
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