Sugar City Uses the Purchases Method to Record All Prepayments

question 55

Multiple Choice

Sugar City uses the purchases method to record all prepayments. The city has a 6/30 fiscal year-end. On 12/31/17, 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 6/30/18 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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