Sugar City Uses the Purchases Method to Record All Prepayments

Multiple Choice

Sugar City uses the purchases method to record all prepayments.The City has a 6/30 fiscal year-end.On December 31, 2000, the city purchased a three-year insurance policy covering all city owned vehicles acquired by the General Fund to be used in general government activity.Cost of the policy was $360,000.After the 6/30/01 closing entries, the appropriate balance sheet accounts and balances associated with this transaction are:

A) Prepaid Insurance $300,000; Expenditure $60,000.
B) Prepaid Insurance $300,000; Expenditures $360,000
C) Prepaid Insurance $0; Expenditure $360,000.
D) Prepaid Insurance $0; Expenditures $60,000.