Question

On July 1, 2015, a company paid an $18,900 premium on a 36-month insurance policy for coverage beginning on that date. Refer to that policy and fill in the blanks in the following table. Income Statement Insurance Expense Accrual Basis Cash Basis Cash Basis Balance Sheet Prepaid Insurance Accrual Basis Dec 31, 2015 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2018 2015 2016 2017 2018 Total

Answer 1

Balance sheet			Income statement
Prepaid insurance			Insurance expense
	Accrual basis	Cash basis		Accrual basis	Cash basis
Dec. 31, 2015	$15,750	0	Dec. 31, 2015	$3,150	18,900
Dec. 31, 2016	$9,450	0	Dec. 31, 2016	$6,300	0
Dec. 31, 2017	$3,150	0	Dec. 31, 2017	$6,300	0
Dec. 31, 2018	0	0	Dec. 31, 2018	$3,150	0

Calculation of insurance expense under Accrual basis

Insurance expense for year 2015 = 18,900 x 6/36

= $3,150

Insurance expense for year 2016 = 18,900 x 12/36

= $6,300

Insurance expense for year 2017 = 18,900 x 12/36

= $6,300

Insurance expense for year 2018 = 18,900 x 6/36

= $3,150

Calculation of prepaid insurance under Accrual basis

Prepaid Insurance for year 2015 = 18,900 - 3,150

= $15,750

Prepaid Insurance for year 2016 = $15,750 - 6,300

= $9,450

Prepaid Insurance for year 2017 = $9,450 - 6,300

= $3,150

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