During January 2020, Crandall industries paid $700,000 in fire insurance premiums for the year. In addition, Crandall experienced $420,000 in losses due to an ice storm in February. If Crandall issues interim statements quarterly, how should these amounts be reflected in its first quarter statement?

Answer rating: 100% (QA)

Crandall Industries should reflect these items differently in their firstquarter financial statements Fire Insurance Fire insurance is a prepaid expense Since the premium covers the entire year 2020 only a portion of it is considered an expense for the first quarter Methods for prepaid expenses There are a few acceptable methods to account for prepaid expenses but the most common is the straightline method This method allocates the cost equally over the periods it benefits Calculation for fire insurance Total premium paid Number of quarters covered in 2020 700000 4 quarters 175000 Ice Storm Loss The ice storm loss is an unusual and infrequent event It shouldnt be classified as a normal business expense Reporting The ice storm loss should be reported as a separate line item below operating income on the income statement ... View the full answer