Niagara Corporation purchased a one-year insurance policy in January 2010 for $66,000. The insurance policy is in effect from March 2010 through February 2011. If the company neglects to make the proper year-end adjustment for the expired insurance
A) Net income and assets will be understated by $55,000.
B) Net income and assets will be overstated by $55,000.
C) Net income and assets will be understated by $11,000.
D) Net income and assets will be overstated by $11,000.

Question

Quizplus · Accepted Answer

The insurance policy covers 12 months, and by the end of December 2010, 10 months have expired. The expense for these 10 months is $55,000 (10/12 of $66,000). If no adjustment is made, expenses are understated, leading to overstated net income and assets by $55,000.

Niagara Corporation Purchased a One-Year Insurance Policy in January 2010