 Hello and welcome to this session in which we would look at a CPA exam questions that was sent to me by a CPA candidate. This individual wanted me to go over this question, go over the solution, explain it in detail. So I took this opportunity to make it a learning moment and the reason I wanted to do so, because I believe this question asks you about basics. It looks very intimidating, but you need to know your basic adjustments. And the reason I want to show you this is because the CPA exam itself tests you on the basic concept. Yes, you need to learn everything, but as long as you know the basics, you should be fine. And this is what I do as farhatlectures.com. I teach you the basics. And this is the difference between what I do in a CPA review course. I teach you the basics and you will be fine once you have the basics. So the question reads, what was the total amount of insurance premium paid in a year or two? So we are giving under East Company Accounting System. All insurance premium paid are debited to prepaid insurance. For interim financial reports, East makes monthly estimated charges to insurance expense with credit to prepaid. That's fine. So what are we saying? Here's what we are saying. We have a prepaid account, Pp4 prepaid and everything is debited to prepaid initially. Then once we expense it, we take it out of prepaid and we expense it to insurance expense. This is what we are told. It goes from prepaid to insurance expense. Additional information for the year and the December 31st year to as I just followed. That can you do that? With those numbers? Okay. Or the number? Yes, I will change. Sorry. I'm just gonna change the color. Okay. Is this good? Okay. So the the prepaid insurance at December 31st year one is one hundred and five thousand. My son is in my is in my lap. So, okay. One oh five. And we are giving charges to insurance expense during year two is four thirty seven five hundred. So we transferred to insurance expense four thirty seven five hundred. And the prepaid at year end is December 31st one twenty two five hundred. And the ending is one twenty two five hundred. So this is what we are giving here. And we are being asked what is the insurance premium paid? How much how much insurance premium did we pay? So simply put what we are looking for is this we started with one oh five. This is the beginning balance. We added something to insurance. We added to insurance something. We don't know that amount and this is what we are being asked. Then we subtracted. We subtracted four thirty seven five hundred and we end up with one twenty two five hundred. So this is basically reading the T account. Okay. We have a beginning balance that was giving. This was the beginning balance. This is the ending balance. And this is what was credited. What was credited out of prepaid. So all what we're looking for is can we find this number in this box here? So how do we do this? Basically now it's a math formula one oh five plus x which is we don't know what x is minus four thirty seven five hundred will give us the ending balance of one twenty two five hundred. We started with this much. We ended up with this much. We added some prepaid. We transferred out of prepaid to expense four thirty seven five hundred. Therefore if we solve the formula let's go ahead and get the calculator and solve this formula. So if we take one oh five it's okay that you could use the other calculator one oh five minus four thirty seven four thirty seven five hundred. This is going to give us minus three minus let me get the number again minus three thirty two five hundred minus three thirty two five hundred plus x equal to one twenty two five hundred. Simply put once we find x we'll take x we'll take three thirty two five hundred plus one twenty two five hundred and that's going to give us zero zero zero one five five four hundred and fifty five. Therefore the prepaid that we purchased is four hundred and fifty five. Simply put this question I mean I teach this concept in accounting 101 okay and what does that mean? It means this you could see these questions on the CPA exam on the actual exam and it's coming from your financial accounting and most of the questions are basics. So that's why I can teach you the basics so you can succeed on the exam. This is what I would do on this is what I would do for you. Before I end I would like to remind you about fourhatlectures.com. If you are studying for your CPA exam check me out and I will be able to help you add knowledge add points to your exam so you can succeed study hard stay safe of course.