Homework Answers
As the oriole investments purchased 12 month insurance policy on May 31,2020 for $4500. So the it means that the policy is for the period from 1 June 2020 to 31 May 2021.
As the company prepared balance sheet on December 31 2020 which reflects the transactions for the period of 1 year i.e 1 Jan 2020 to Dec 31 2020.
So the insurance purchased for the period above the date of Dec 31 2020 will be treated as prepaid insurance
hence will be shown on asset side in the balance sheet under current assets
Prepaid insurance will be of 5 months i.e 1 Jan 2021 to May 31 2020 so value would be
= (Insurance Amount/Total months)*Prepaid months
= ($4500/12)*5 = $1875
Option D is the answer
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