Question

Aurora Corporation operated without insurance coverage for the first month of 2015. Then, on February 1, 2015, the company paid the $4,800 premium on a two-year insurance policy with benefits beginning on that date. The company uses the accrual basis. How much insurance expense will be reported on the company's income statement for the year ended December 31, 2015?

Answer 1

$2200

Explanation:

$4800 premium for 2 years means for 2* 12 = 24 months, thus each month, the insurance expense is:

4800/24 = 200 dollars

Since they haven't used insurance in January, they will use insurance expense for the rest of the 12 - 1 = 11 months, thus the expense would be:

200 * 100 = $2200