51. The insurance premium on a commercial property is $9,000. It is due on January 1 and was paid in advance. The sale of the property closed on July 16. Assuming a 360-day year and the buyer paying for the day of closing, what is the buyer's prorated share of the premium at closing?
Answer: B
The buyer's prorated share of the premium at closing is $4,160.
To determine the buyer's prorated share of the insurance premium at closing, we calculate the portion of the premium applicable from the purchase date on July 16 to the end of the policy period on December 31. The total premium is $9,000 for a full year, and since the buyer pays for the day of closing, we calculate the number of days from July 16 to December 31.
A) $4,126
Option A is incorrect because it underestimates the number of days from the closing date to the end of the year. The calculation for this option does not accurately account for the full number of days between the closing date and the end of the policy period, leading to a lower prorated share than what is owed.
B) $4,160
This option is correct. The total number of days from July 16 to December 31 is 168 days. Using a daily premium calculation of $25 ($9,000/360 days), the buyer's prorated share is $4,160 (168 days * $25/day), which reflects the accurate portion of the premium owed at closing.
C) $4,860
Option C is incorrect as it significantly overestimates the buyer's share. The calculation for this option likely miscalculates the number of days or applies an incorrect daily rate, resulting in a value that does not align with the prorated amount based on the correct number of days.
D) $4,876
Option D is also incorrect because it suggests a higher prorated amount than the actual share due. Similar to Option C, this choice likely miscalculates the daily premium or the number of days, failing to accurately represent the buyer's responsibility based on the closing date.
Conclusion
The correct answer of $4,160 reflects the precise prorated share of the insurance premium due at the time of closing, based on the number of days the buyer is responsible for the insurance. All other options either miscalculate the days or the premium rate, leading to inaccurate amounts that do not correspond to the correct prorated calculation.