Sugar City Uses the Purchases Method to Record All Prepayments

question 23

Multiple Choice

Sugar City uses the purchases method to record all prepayments.The city has a 6/30 fiscal year-end.On 12/31/14, the city purchased a three-year insurance policy covering all city owned vehicles acquired by the general fund to be used in general government activities.Cost of the policy was $360,000.After the 6/30/15 closing entries, the appropriate balance sheet accounts and balances in the city's general fund associated with this transaction are

• A)Prepaid insurance $300,000; Expenditures $60,000.
• B)Prepaid insurance $300,000; Expenditures $360,000
• C)Prepaid insurance $0; Expenditures $360,000.
• D)Prepaid insurance $0; Expenditures $60,000.

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Definitions:

Path Analysis

A specialized type of structural equation modeling used to describe directed dependencies among a set of variables, suitable for analyzing complex causal relationships.

Causality

The concept that an event (the cause) directly leads to another event (the effect) through a causal relationship.

Correlations

Statistical measures that denote the extent to which two or more variables fluctuate together.

Structural Equation Modeling

A multivariate statistical analysis technique that is used to analyze structural relationships between measured variables and latent constructs.