Exercise 2

Toro, Inc. paid $9,330 to renew its only insurance policy for three years on March 1, year 1, the effective date of the policy. At March 31, year 1, Toro's unadjusted trial balance showed a balance of $450 for prepaid insurance and $9,330 for insurance expense.

Required:

What amounts should be reported for prepaid insurance and insurance expense in Toro's financial statements for the three months ended March 31, year 1? Hint: The price of the insurance premium increased in the current year.