A company follows a practice of expensing the premium on its fire insurance policy when the effect on policy is paid. In 2012, the company charged to expense the $6,000 premium paid on a three year policy covering the period July 1, 2012, to June 30, 2015. In 2005, a premium of $5,400 was charged to expense on the same policy for the period July 1, 2009, to June 30, 2012. asset (L.O. 2)

a. State the principle of accounting that was violated by this practice.

b. Compute the effects of this violation on the financial statements for the calendar year 2012.

c. State the basis on which the company’s practice might be justified.