Malcolm Corporation Purchased an Insurance Policy for Three Years Beginning

question 19

Multiple Choice

Malcolm Corporation purchased an insurance policy for three years beginning January 1, Year 2, and recorded the $6,000 premium in the Prepaid Insurance account.What adjusting entry is required to reflect the proper balances, in the insurance-related accounts at year-end, on December 31, Year 2?

• A)Insurance Expense 2,000 Prepaid Insurance 2,000
• B)Prepaid Insurance 2,000 Insurance Expense 2,000
• C)Insurance Expense 4,000 Prepaid Insurance 4,000
• D)Prepaid Insurance 4,000 Insurance Expense 4,000
• E)Insurance Expense 6,000 Prepaid Insurance 6,000

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Definitions:

PVGO

Present Value of Growth Opportunities; a model to estimate the portion of a company's stock price that is attributed to future growth opportunities.

Stock Price

The current price at which a particular stock can be bought or sold in the market, influenced by supply and demand, company performance, and market sentiment.

Forecast Earnings

An estimate of a company's future earnings per share over a specific period, often used by analysts to project future financial performance.

ROE

Return on Equity, a measure of the profitability of a business in relation to the equity, calculated as net income divided by shareholder's equity.