A Business Keeps Its Accounts on a Calendar-Year Basis

question 5

Essay

A business keeps its accounts on a calendar-year basis.On January 1,2013,there is a balance of $2,800 in the Prepaid insurance account.The insurance represented by that amount expires on March 31,2013,but the business makes no entry to record the expiration of the insurance until its year-end.On April 1,2013,the business pays $16,000 for an insurance policy covering the period April 1,2013 - March 31,2014.Prepare the journal entry at December 31,2013,to record the full amount of insurance expense for the year.

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Definitions:

Materially Breached

Pertaining to a serious violation or failure to perform one’s duties under a contract that justifies the other party's right to terminate the agreement.

Substantially Breached

A significant failure to fulfill one's duties under a contract, which justifies the other party's right to terminate the agreement and seek damages.

Anticipatory Breach

Occurs when one party to an agreement makes it clear, before the performance is due, that they do not intend to fulfill their contractual obligations.

Compensatory Damages

Financial compensation awarded to a plaintiff to cover actual losses and expenses resulting from another party's negligence or wrongful actions.