[syllo2012]

This is taken from Becker CPA – 00605

Q. Under East Co.’s accounting system, all insurance premiums paid are debited to prepaid insurance. For interim financial reports, East makes monthly estimated charges to insurance expense with credits to prepaid insurance. Additional information for the year ended December 31, Year 2, is as follows:

Prepaid insurance at December 31, Year 1 – $105,000

Charges to insurance expense during Year 2 (including a year-end adjustment of $17,500)- $437,500

Prepaid insurance at December 31, Year 2 – $122,500

What was the total amount of insurance premiums paid by East during Year 2?

a. $437,500

b. $332,500

c. $420,000

d. $455,000

A. Choice “d” is correct. $455,000 insurance premiums paid during Year 2.

Prepaid Insurance

Begin balance 12/31/year 1 $105,000

Add payment 455,000

____________

sub total 560,000

Less expense (437,500)

___________

Ending balance 12/31/year 2 $122,500

It may be very obvious, but for the life of me I don’t understand how to get the $455,000 payment. There are quite of bit of questions like this and for some reason my brain has blocked out any logic in it.

Please help.

FAR - 04/15/13 70 - 07/02/13 79!!!
AUD - 08/19/13 84 🙂
REG - 10/14/13
BEC - 11/29/13

Using Becker