Can anyone tell me if this is correct and if not what I did wrong. Thank you
Exercise 3-7
On March 1, 2003, a company paid a $16,200 premium on a 36-month insurance policy for coverage
beginning on that date. Refer to that policy and fill in the blanks in the following table:
Check 2005 insurance expense:
Accrual, $5,400; Cash, $0. Dec. 31, 2005,
asset: Accrual, $900; Cash, $0
Balance Sheet Insurance Asset Using
Accrual Basis Cash Basis
Dec. 31, 2003 $_450.00____ $___0__
Dec. 31, 2004 _6,300.00 ___ ___0__
Dec. 31, 2005 _900.00_____ ___0___
Dec. 31, 2006 _____0__ ____0___
Insurance Expense Using
Accrual Basis Cash Basis
Dec. 31, 2003 $4,500.00__$_16,000______
Dec. 31, 2004 __5,400.00______ _______
Dec. 31, 2005 __5,400.00 ____ ___0____
Dec. 31, 2006 __900.00______ ___0____
Total $_16,200.00______ $_16,000__
To check if the provided table is correct, we need to calculate the insurance expense and insurance asset amounts for each year and compare them to the values given.
1. Calculate the insurance expense:
- In 2003, the insurance policy started, so the expense is the full premium of $16,200.
- In 2004, there is no additional expense mentioned, so it remains the same as $16,200.
- In 2005, the additional expense is given as $5,400.
- In 2006, the additional expense is given as $900.
2. Calculate the insurance asset:
- In 2003, the asset is not mentioned, but we can calculate it by subtracting the accumulated expense ($16,200) from the starting asset ($0), which gives us $-16,200.
- In 2004, the additional asset is given as $6,300.
- In 2005, the additional asset is given as $900.
- In 2006, the additional asset is given as $0.
Now, let's compare the calculated values to the values provided in the table:
Balance Sheet Insurance Asset:
Dec. 31, 2003: Calculated - $-16,200, Provided - $_450.00____
Dec. 31, 2004: Calculated - $6,300.00, Provided - _6,300.00___
Dec. 31, 2005: Calculated - $900.00, Provided - _900.00_____
Dec. 31, 2006: Calculated - $0, Provided - _____0____
Insurance Expense:
Dec. 31, 2003: Calculated - $16,200.00, Provided - $4,500.00
Dec. 31, 2004: Calculated - $16,200.00, Provided - 5,400.00
Dec. 31, 2005: Calculated - $21,600.00, Provided - 5,400.00
Dec. 31, 2006: Calculated - $22,500.00, Provided - 900.00
Based on the calculations, there are discrepancies between the calculated and provided values in the table. The provided values seem to be incorrect. It's recommended to review the calculation method and update the table accordingly.