[NinaSun]

Roro, Inc. paid $7,200 to renew its only insurance policy for three years on March 1, Year 5, the effective date of the policy. At March 31, Year 5, 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 three months ended March 31, Year 5?

Prepaid insurance Insurance expense

a. $7,000 $300

b. $7,000 $500

c. $7,200 $300

d. $7,300 $200

The answer is “b”. The explanation saying the prepaid insurance will expire and become insurance expense in March. So the insurance expense would be $300+$200. What is the indication that the prepaid insurance $300 would be recognized in March? My answer was “d”. The $300 would not expire plus the new $7000 prepaid expense. $200 would be recognized as the policy start at March 1st. Could any one help? Thanks

AUD-74,75 11/2014
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