When Becca bought a condo from Zach, who paid an annual insurance premium of $450 that expired on June 30, how is the expense prorated?

To determine how the annual insurance premium is prorated and why the chosen answer is correct, first consider the timing of the insurance premium in relation to the closing date of the condo purchase. The annual insurance premium of $450 is valid for a full year, but it expires on June 30.

When Becca buys the condo, it is important to calculate how many months are covered by the premium up to the closing date. If we assume the closing took place on or before June 30 and for simplicity, let's consider it to be June 30, the total amount of coverage for the year is $450, which translates to a monthly cost of $450 divided by 12 months, equaling $37.50 per month.

Now, if Becca is purchasing the condo on June 30, she would not benefit from any of the premium coverage that Zach has paid beyond that date. Therefore, for the transaction, Zach is responsible for the entire annual premium of $450, but as of the closing date, the coverage only remains valid for the month of June.

Since the buyer, Becca, will have only one day of that insurance coverage on June 30, the premium needs to be prorated for just that day. This