On October 1,2010,Adams Company Paid $4,000 for a Two-Year Insurance

question 29

Multiple Choice

On October 1,2010,Adams Company paid $4,000 for a two-year insurance policy with the insurance coverage beginning on that date.As of December 31,2010,which of the following account balances are correct after adjusting entries have been made?

• A)Prepaid insurance, $4,000 and Insurance expense, $0.
• B)Prepaid insurance, $0 and Insurance expense, $4,000.
• C)Prepaid insurance, $2,000 and Insurance expense, $2,000.
• D)Prepaid insurance, $3,500 and Insurance expense, $500.

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Definitions:

Corporate Bureaucracy

The administrative system governing any large institution or organization, characterized by a hierarchy of authority, rigid division of labor, and strict regulations and procedures.

Average Fixed Cost

The fixed costs of production divided by the quantity of output produced, showing the cost of each product unit excluding variable costs.

Average Variable Cost

The cost a company incurs for each unit of output, which changes with the level of production, excluding fixed costs.

ATC

Abbreviation for “Average Total Cost,” reflecting the total cost of production divided by the number of goods produced, in economic terms.