How to record 3 months free insurance coverage in Journal Entry?

[Yuliana]

Hi

How do we record in a journal entry for the following situation.
The entity receives 3 months free insurance coverage for 12 months paid insurance premium.
How does this goodwill be recorded in the journal entry.
Thank you for any advice provided.

 

[smallbushelp]

It's not really considered goodwill, it's just that you'll be paying a lower premium for the full year. Assuming that you're on the accrual method and you pay the full amount up front, I would post the payment to a prepaid account and then allocate a portion (1/12th) to your expense account each month until used up.

 

[Yuliana]

I understand about allocating a portion of the insurance premium cost as it is consumed or expired each month. However, how do I account for the 3 months free coverage?
I paid for 12 months insurance premium and receive a 3 months free coverage, so now I have 15 months coverage in total. How do I allocate the cost for the free months?
Say I paid $12,000 for 12 months coverage.
Are you suggesting that I record the Prepaid Insurance as 12,000 for 15 months?
so each month, I expense the expired insurance cost at $800?

Thank you again, appreciate you valuable advice.

 

[smallbushelp]

Yes, I am. If that is how long the coverage will last.