1Dianes Designs purchased a oneyear liability insurance poli

1.Diane\'s Designs purchased a one-year liability insurance policy on March 1 of a year for $4,800 and recorded it as a prepaid expense. Which of the following amounts would be recorded as insurance expense during the adjusting process at the end of Diane’s first month of operations on March 31?

a.$400

b.$4,400

c.$480

d.$4,800

Solution

1)

When financial statements are prepared for a specific period, all the expenses and incomes attributable for that period should be duly accounted for fair preparation of financial statements. Insurance paid is for the year, so only one-month expense should be accounted as insurance expense.

Hence, correct option is a. $400.