Can anyone help me with this question related to prepaid insurance?

Viewing 10 posts - 1 through 10 (of 10 total)
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  • #186086
    yhe1223
    Participant

    The premium on a three-year insurance policy expiring on December 31, 2011 was paid in total on January 1, 2009. If the company has six-month operating cycle, then on December 31. 2009, the prepared insurance reported as a current asset would be for a.

    a 6 months c. 18 months

    b 12 months d.24 mont

    Thank you !!!

    #567264
    Mamabear
    Member

    I think it's B–An asset is classified as current if it is turned to cash within one year or the operating cycle, whichever is longer.

    #567265
    yhe1223
    Participant

    Thank you @Mamabear, so it does not matter if its for a 3 year life?

    #567266
    JamesBJames
    Participant

    I remember having this question in Becker. The answer is B. Current assets are assets that will be converted to cash in a year or less, although there are some rare exceptions where the operating cycle might take longer than a year and you would use that time period instead.

    For 99% of questions, current assets are for 12 months or less.

    In this question, 12 months of the prepaid insurance is a current asset. The remainder is a non-current asset.

    #567267
    Mamabear
    Member

    The 3 year life means that 1 year of it was expensed in 2009, 1 year of it is a current asset for 2010 (reported on the 12/31/09 balance sheet date), and 1 year of it is a noncurrent asset for 2011.

    #567268
    yhe1223
    Participant

    Thank you guys!!! Really helpful!!!

    #1519528
    warsidi
    Participant

    In my opinion, the best answer is B, the prepaid insurance is for the next 12 months. The reminder future benefit related to 2011 is properly classified non-current asset.

    #3305948
    Ally
    Participant

    Thanks for clearing this up!

    #3305951
    Ally
    Participant

    Thanks for clearing this up!

    #3305954
    Ally
    Participant

    Thanks for clearing this up!

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