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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Why is the cash surrender value of a life insurance policy on which the company is the beneficiary carried as an investment? How does the company determine the increase in this amount and the amount of insurance expense determined each year?

To determine

Determine the reason for which the beneficiary company of cash surrender value of a life insurance policy considers this policy as an investment and the manner in which the company identify the increase in the policy amount and the insurance expense amount for each year.

Explanation

In general, the insurance policies permit part of the accumulated premiums to build up as a savings plan. If such policies are cancelled, then this savings plan (cash surrender value of the policy) would be returned to the company which buy the life insurance policy.

A portion of the each premium paid on the policy would be considered as an investment, if the policy guarantee...

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