On October 1, 2009 CW Oil Drilling Company paid $2,400,000 for a two-year insurance policy that covers all of its drilling equipment around the world. The company recorded the purchase as prepaid insurance. Complete the chart below:
Cash paid Insurance
expense Prepaid
insurance
Year ended Dec. 31, 2009 $ $ $
Year ended Dec. 31, 2010 $ $ $
Year ended Dec. 31, 2011 $ $ $
Year Cash paid Insurance
expense Prepaid
insurance
Year ended Dec. 31, 2009 $(2,400,000) $300,000 (a) $2,100,000 (b)
Year ended Dec. 31, 2010 $0 $1,200,000 (c) $900,000 (d)
Year ended Dec. 31, 2011 $0 $900,000 (c) $0 (f)
(a) 2009 has 3 months of expense. $2,400,000 / 24 months = $100,000 per month
(b) $2.4M - 300K
(c) 2010 has 12 months of expense @ $100,000
(d) $2.1M - 1.2M
(e) The remaining amount of the asset is used up, 9 months @ $100,000.
(f) At the end of the year no asset remains
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