A Florida GC prepaid $18,000 for annual insurance and expenses it evenly by month. After 7 months have expired, what prepaid asset remains?
Correct Answer
D) $7,500
Monthly expense is $1,500. Five months remain unexpired, so the prepaid asset is $7,500.
Why This Is the Correct Answer
Monthly expense is $1,500. Five months remain unexpired, so the prepaid asset is $7,500.
Why the Other Options Are Wrong
Option A: $6,000
$6,000 is below the supported result for prepaid expense balance; it likely uses the wrong base, period, or account bucket.
Option B: $6,500
$6,500 is below the supported result for prepaid expense balance; it likely uses the wrong base, period, or account bucket.
Option C: $7,000
$7,000 is below the supported result for prepaid expense balance; it likely uses the wrong base, period, or account bucket.
Memory Technique
Prepaid Expense Balance drawer for Accountant Checking: label monthly before counting dollars.
Reference Hint
Open-book path: tab Builder's Guide to Accounting, 2001 to Section Three, Recording Before the Event, Prepaid Expenses; use the job ledger figures in the stem and recompute the same accounting measure.
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