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A business prepaid $1,200 for one year of insurance on 1 June, recorded as an asset. What balance remains in Prepaid Insurance on the statement of financial position at 31 October of the same year?
A$1,100
B$500
C$800
D$700
Answer & Solution
Correct answer: D. $700
1. Monthly expiry $= 1{,}200 \div 12 = 100$.
2. From June to October inclusive is five months: June, July, August, September, October.
3. Amount expired $= 5 \times 100 = 500$.
4. Remaining $= 1{,}200 - 500 = 700$, so D is correct; A is after one month only and B is the expired amount.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §2.3.1 "Prepaid Insurance—Deferred Expense", p.64_
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