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  1. avatar says

    Kindly help with this question

    In October 2013, insurance of $2,400 was paid for the year to 30/11/2014. In October 2014,
    insurance of $3,000 was paid for the year to 30/11/2015.
    What expense for insurance should be shown in the income statement for the year ended
    31/12/2014, and what accrual or prepayment would be shown in the statements of
    financial position of 31/12/2013 and 31/12/2014?

    A- Expense $2,500; accrual 31/12/2013 = $2,000; accrual 31/12/2014 = $2,500
    B- Expense $2,450; prepayment 31/12/2013 = $2,400; prepayment 31/12/2014 = $2,750
    C- Expense $2,500; prepayment 31/12/2013 = $2,000; prepayment 31/12/2014 = $2,500
    D- Expense $2,450; accrual 31/12/2013 = $2,400; accrual 31/12/2014 = $2,750

    • Profile photo of John Moffat says

      We need the expense for Jan to Dec 2014.
      From Jan to Nov (11 months) it was at the rate of $2400 per year
      For Dec, it was at the rate of $3000.
      So….take 11 months at 2400/12 per month, and 1 month at 3000/12 per month.

      At the end of December in both years you have prepaid (because already paid up to end November the following year). So both years have a prepayment.

      You do not need to calculate the amount (although it is 11 months) because there is only one answer that is then possible.

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