When analyzing insurance expense at the end of the year, it turns out that $1,60

Question

When analyzing insurance expense at the end of the year, it turns out that $1,600 of the current year insurance expense is Key Person Life Insurance and $7,200 was paid for a general liability policy for the year ending 2/28/16. The company has entered into a lease agreement that was mistakenly recorded as an operating lease and included in overhead. The non-cancelable lease agreement was entered into on January 1, 2015. Lease payments are $3,500 and are made at the beginning of the year for 5 years. The economic life of the factory machine is 7 years and no salvage value. The appropriate interest rate is 5%._Error in posting is in CGS, set up the lease and accrue interest. Don't forget Depreciation & Current Portion A $3,631 utility bill for December was lost in the mail and just arrived.

Explanation / Answer

1)

Premium of general life policy = 7200

unexpired time period at end = 2 months ( jan, feb)

prepaid insurance = (7200 /12) x 2,= 1200

Key person life insurance - investment 1600 Prepaid insurance 1200 To Insurance expense 2800

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