I need help on the following problem: An analysis of the company\'s insurance po

Question

I need help on the following problem: An analysis of the company's insurance policies provided the following facts:

Policy A April 1, 2010 24 $15,840
Policy B April 1, 2011 36 13,068
Policy C August 1, 2011 12 2,700

The total premium for each policy was paid in full (for all months) at the purchase date, and the Prepaid Insurance account was debited for the full cost. (Year-end adjusting entries for Prepaid Insurance were properly recorded in all prior years.)

I need to know the formula and how you arrive at the answer.

Explanation / Answer

Policy A - paid $15,840 on April 1, 2010. Has a life of 24 months. So for 2010 there is 9 months left. So 15,840/24 = 660 per month expense. so $5,940 ($660 x 9) would be a credit to the prepaid and a debit to the expense at the end of 2010. In 2011 it would be $660 x 12 = $7,920 would be expensed in 2011 as a credit to the prepaid and a debit to the expense. Same scenario for the other two, except they were purchased in 2011

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