Question

A sale transaction closes on July 4. The day of closing belongs to the seller. On January 1, the seller paid a hazard insurance premium of $375 for the calendar year. According to the 12-month/30-day method, what is the seller's share of the insurance premium?

Answer 1

Answer:Sellers share = $191.67

Explanation:

we assume the amount of $375 is the insurance premium paid for the entire year

insurance premium for the year = $375/12 months = $31.25 a month.

Sellers share Period = 6 months plus 4 days (from 1 January to June 30 plus 4 days of July)

Sellers share = ($31.25 x 6) +( 4 x 31.25/30 days) = 191.666667

Sellers share = $191.67

Answer 2

Answer:

The seller's share of the insurance premium is $191.67

Explanation:

The seller paid a hazard insurance premium of $375. According to the 12-month/30-day method:

1. We divide this amount by 12 to obtain an average  monthly rate
2. Average daily rate is equal to the monthly rate divided by 30
3. Seller share = (monthly rate × the number of months of ownership in the year of the  sale up to the month of closing) + (daily rate × number of days of ownership in month of closing)

Therefore:

Total amount                                                    $375

Monthly amount rate                                        $375/12 = $31.25

Daily amount rate                                              $31.25/30 = $1.042

From January 1 to July 4 they are 6 months and 4 days, Therefore:

Seller's share = ($31.25 × 6) + ($1.042 × 4) = $187.5 + $4.168 = $191.67

The seller's share of the insurance premium is $191.67