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Knowledge Check 01
Knowledge Check 01Aurora Corporation operated without insurance coverage for the first month of operations. Then, on February 1, the company paid the
$4,800 premium on a two-year insurance policy with benefits beginning on that date. The company uses the cash basis. How much
insurance expense will be reported on the company's income statement for their first year ended December 31?
$200
$2,200
$4,600
$4,800
TheAurora Corporationpaid a $4800 insurance premium for a two-year coverage in cash basis accounting. We calculate a monthly rate by dividing the total amount by 24 months, then multiply it by 11 to get the total expense of the first year, which is$2200.The Aurora Corporation uses thecash basisfor accounting. Given the payment of the insurance premium for a two-year policy, we need to calculate the expense incurred in the first year. Since the premium, $4800, is for a two-year period, it's best to dissect this into a monthly amount. Therefore $4800 divided by 24 months amounts to $200 per month.As the policy starts in February and ends in December of the same year, there are11 monthscovered, which equals a total of $2200.Learn more about Cash basis Accounting here:brainly.com/question/25817056#SPJ11...