Hello,

I need some confirmation on a question which requires me to analyze the adjusted date.

The company's fiscal year end is December 31. On January 31, 2008, the company's partial trial balance shows the following

Prepaid Insurance $2400

Insurance Expense $400

If the amount in Insurance Expense is the Jan 31 adjusting entry, and the original insurance premium was for one year, what was the total premium and when was the policy purchased?

This is my answer

The insurance expense of 400 is for the month of Jan and it's a new fiscal year, so I took the 400 x 12 = 4800 the total of the original premium for one year.

When was the policy purchased? I took the 400 + 2400=2800 left on the policy, then I took 4800 - 2800= 2000 of the policy which was already expired and I counted backwards to get the purchased date of the policy August 2007

Would this be correct??

Thanks

The insurance expense of 400 is for the month of Jan and it's a new fiscal year, so I took the 400 x 12 = 4800 the total of the original premium for one year.

That's correct.


When was the policy purchased? I took the 400 + 2400=2800 left on the policy, then I took 4800 - 2800= 2000 of the policy which was already expired and I counted backwards to get the purchased date of the policy August 2007

Depends. August what, 2007? Saying it's August doesn't tell if it's Aug 1 or Aug 31, and therefore whether that month is counted or not.

$2800 is not left on the policy. $2400 is, which is why that's what is now in the prepaid account. That's as of the end of January. And it's also half of the policy, so it was purchased a half year back either at the very end of July or beginning of August.