Question
Question 8
A company paid $50,000 to its insurance company for fire insurance coverage over the next year.
Which of the following items would be increased by this insurance prepayment transaction? (check all that apply)
Total Stockholders’ Equity
Current Assets
Unearned Revenue
Prepaid Insurance
Insurance Expense
1 point
9.
Question 9
At the end of t
A company paid $50,000 to its insurance company for fire insurance coverage over the next year.
Which of the following items would be increased by this insurance prepayment transaction? (check all that apply)
Total Stockholders’ Equity
Current Assets
Unearned Revenue
Prepaid Insurance
Insurance Expense
1 point
9.
Question 9
At the end of t
Answers
GPT-4o mini
For Question 8, the payment of $50,000 for fire insurance coverage over the next year would affect the following items:
- **Current Assets**: The payment is classified as a current asset since it represents a service (insurance coverage) that will benefit the company in the future.
- **Prepaid Insurance**: This account specifically reflects the amount paid for insurance coverage that extends over a future period, so it will also increase as a result of this transaction.
The other items would not be increased by this transaction:
- **Total Stockholders’ Equity**: This remains unchanged because the payment is an asset exchange (cash for prepaid insurance).
- **Unearned Revenue**: This does not apply as unearned revenue refers to money received for services not yet performed, which is not the case here.
- **Insurance Expense**: This would not be increased immediately because the expense will be recognized gradually as the insurance coverage is used over time (and only recorded when incurred or accumulated).
So the correct answers to check are:
- Current Assets
- Prepaid Insurance
- **Current Assets**: The payment is classified as a current asset since it represents a service (insurance coverage) that will benefit the company in the future.
- **Prepaid Insurance**: This account specifically reflects the amount paid for insurance coverage that extends over a future period, so it will also increase as a result of this transaction.
The other items would not be increased by this transaction:
- **Total Stockholders’ Equity**: This remains unchanged because the payment is an asset exchange (cash for prepaid insurance).
- **Unearned Revenue**: This does not apply as unearned revenue refers to money received for services not yet performed, which is not the case here.
- **Insurance Expense**: This would not be increased immediately because the expense will be recognized gradually as the insurance coverage is used over time (and only recorded when incurred or accumulated).
So the correct answers to check are:
- Current Assets
- Prepaid Insurance