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How much of the premium will be recognised as an expense

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Problem 1: An entity's financial year ends on 31 December 2020. On 1 March 2020 it pays a 12-month insurance premium of $12 000. Under the accrual system of accounting how much of the premium will be recognised as an expense for the year ended 31 December 2020 and how much will be treated as an asset (prepaid insurance)?

A. $9000 expense and $3000 prepaid insurance

B. $4000 expense and $8000 prepaid insurance

C. $10000 expense and $2000 prepaid insurance

D. $12000 expense and $0 prepaid insurance

E. $0 expense and $12 000 prepaid insurance

Problem 2: A machine is purchased for $130 000. It is estimated that it has a useful life of 8 years and will then be sold for $10 000. Using the straight-line method calculate the amount of depreciation to be charged for each year of useful life.

A. $1 625

B. $10 000

C. $16 250

D. $15 000

E. $0

Reference no: EM132761492

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