Reference no: EM132960290

Cash surrender value of life insurance - is the amount to be paid by the insurance company upon surrender and cancellation of the life insurance policy. Insurance companies usually allow a portion of accumulated premiums to build up as a savings plan, when the policy is cancelled; the savings plan or cash surrender value is returned to the insured. The cash surrender value of life insurance increases from year to year and is stated in the policy. Any increase in the cash surrender value account will be debited to this account with a corresponding credit to the life insurance expense account. Any cash dividend that may be received from the insurance company should be recognized as a reduction to the life insurance expense account.

Problem 1: On January 1, 2016, Plankton Company purchased a P4,000,000 ordinary life insurance policy on its president. Additional data for the year 2019 are: Cash surrender value, January 1, P 200,000; Cash surrender value, December 31, P220,000; Annual insurance premium paid on January 1, 2019, P80,000; Dividend received on August 1, P 10,000. Plankton Company is the beneficiary under the life insurance policy. What amount of life insurance expense should Plankton Company report in its December 31, 2019 Profit or Loss statement?

a. 50,000

b. 70,000

c. 60,000

d. 80,000