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Sugar City uses the purchases method to record all prepayments. The City has a 6/30 fiscal year-end. On 12/31/06, the C...

Sugar City uses the purchases method to record all prepayments. The City has a 6/30 fiscal year-end. On 12/31/06, the City purchased a three-year insurance policy covering all city owned vehicles accounted acquired by the General Fund to be used in general government activity. Cost of the policy was $360,000. After the 6/30/07 closing entries, the appropriate balance sheet accounts and balances associated with this transaction are in the City s General Fund

Prepaid Insurance $300,000; Expenditure $60,000.

Prepaid Insurance $300,000; Expenditures $360,000

Prepaid Insurance $0; Expenditure $360,000.

Prepaid Insurance $0; Expenditures $60,000.
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Answer #1
The cost of insurance policy acquired by the General Fund will be shows as an Expenditure in City s General Fund.
The balances associated with this transaction in the City's General Fund are:
Prepaid Insurance $0; Expenditure $360,000.
Option C is correct
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