Answered

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On May 1, a two-year insurance policy was purchased for $12,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31

Sagot :

Answer:

$4,000

Explanation:

The accrual concept is of the opinion that expense should be recognized when incurred and not necessarily when the expense is paid for.

The insurance payment made was for two years, hence, at the end of the first year ended 31 December, which is the 8 months after the payment has been made, hence, 8-month insurance expense would be recognized in the first year.

May 1-December 31=8 months

insurance expense=two-year payment*8 months/2 years

insurance expense=$12,000*8/24

insurance expense for the first year=$4,000

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