A Business Pays Its Insurance Premium of $2,400 on November

question 83

Multiple Choice

A business pays its insurance premium of $2,400 on November 1 of each year.On January 1 of the new year (after December 31 adjustments) ,the Prepaid insurance account has a debit balance of:

• A) $1,200.
• B) $400.
• C) $2,400.
• D) $2,000.

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Definitions:

Nominal Annual Cost

The cost associated with a financial transaction or investment, expressed as a yearly rate without adjustment for inflation.

Net Days

This term signifies the number of days within which a payment is due after an invoice has been received.

Cash Conversion Cycle

A metric that expresses the time (days) it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

Accounts Receivable

Money owed to a company by its clients or customers for goods or services that have been delivered but not yet paid for.