[ShowMeThaMoney]

On July 1, Year 1, Roxy Co. obtained fire insurance for a 3-year period at an annual premium of $72,000 payable on July 1 of each year. The first premium payment was made July 1, Year 1. On October 1, Year 1, Roxy paid $24,000 for real estate taxes to cover the period ending September 30, Year 2. This prepayment was made to obtain a discount. In its December 31, Year 1, balance sheet, Roxy should report prepaid expenses of:

a. $60,000

b. $54,000

c. $48,000

d. $36,000

B is the answer, can anyone explain it to me? Becker’s explanation is quite pathetic, Ive been staring and trying to recalculate it for the better part of 10 minutes..

Thanks



FAR - 11/3/2012
BEC - 1/2013
AUD - 2013
REG - 2013

[Whatdidyou]

Prepaid Insurance =

$72,000 prepayment made at the beginning of the period x (6 months unused insurance/12) = 36,000

Prepaid Taxes = $24,000 prepayment x (9months left/12) = 18,000

$36,000 + $18,000 = $54,000

The nice thing about this problem is that the prepayments are for 12 months exactly. Also, it always helps to make a little timeline diagram for these types of problems so that you don't mix up the years.

REG - Passed!!
BEC - Passed
FAR - Passed
AUD - Passed

Study Materials: Becker basic course

[Minimorty]

Also, just a heads up that matching principle questions like these are going to be some of the easiest questions on the exam. You have to get these right if you want to pass.

[jenuno01]

I agree with Mini, questions this basic should not be tripping you out. The good news is that you're taking FAR 10/30, so there's time to sharpen your skills.

Class of 2012

[Anonymous]

i got this question wrong as well at first glance.. i made the mistake of reading too quickly and assuming the $72,000 was a prepayment for 3 years, and not a $72,000 payment every year. learned my lesson that you have to slow down and make sure to read every question carefully!

[Anonymous]

No offense guys, but this person just asked how to solve the problem. I'm sure a lot of us have asked questions on here that may seem “basic” to others. Sometimes just reading how someone else approaches or solves a problem makes a light go off.

[Author]

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