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Math  /  Numbers & Operations

Question3. Mackenzie Insurance Company collected a premium of $15,000\$ 15,000 for a 1-year insurance policy on May 1. What amount should Mackenzie report as a current liability for Unearned Insurance Revenue at December 31? a. $0\$ 0. (b.) $5,000\$ 5,000. c. $10,000\$ 10,000. d. $15,000\$ 15,000.

Studdy Solution

STEP 1

1. The insurance policy is for 1 year, starting from May 1.
2. The total premium collected is \$15,000.
3. We need to determine the unearned portion of the insurance revenue as of December 31.

STEP 2

1. Determine the total duration of the insurance policy.
2. Calculate the time elapsed from the start of the policy to December 31.
3. Calculate the earned insurance revenue.
4. Calculate the unearned insurance revenue.

STEP 3

Determine the total duration of the insurance policy, which is 12 months (from May 1 to April 30 of the following year).

STEP 4

Calculate the time elapsed from the start of the policy on May 1 to December 31.
- May to December is 8 months.

STEP 5

Calculate the earned insurance revenue by determining the fraction of the year that has passed and applying it to the total premium.
- The fraction of the year that has passed is 812\frac{8}{12}. - The earned revenue is 812×$15,000=$10,000\frac{8}{12} \times \$15,000 = \$10,000.

STEP 6

Calculate the unearned insurance revenue by subtracting the earned revenue from the total premium.
- Unearned revenue = Total premium - Earned revenue - Unearned revenue = \$15,000 - \$10,000 = \$5,000
The amount Mackenzie should report as a current liability for Unearned Insurance Revenue at December 31 is:
$5,000\boxed{\$5,000}

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