If the Ratio of Insurance Expense to Related Property, Plant

question 61

Multiple Choice

If the ratio of insurance expense to related property, plant, and equipment is higher than expected, which of the following is a plausible explanation?

• A)Too much expired insurance is still included in prepaid insurance.
• B)PP&E insurance expense includes some expenses related to product liability insurance.
• C)Depreciation expense was based on overly short useful lives.
• D)Some routine maintenance on equipment was added to the equipment asset account.

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Definitions:

Accrued Expenses

Expenses that have been incurred but not yet paid, recognized in the financial statements before the cash transactions occur.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.

Accrue Wages Expense

The recognition of wages incurred by employees that have not yet been paid by the company.

Financial Statements

Consolidated documents that present the financial activities and conditions of a business or entity, including the balance sheet, income statement, and cash flow statement.