Masterfalls Corporation purchased a one-year insurance policy in January 2021 for $36,000.The insurance policy is in effect from March 2021 through February 2022.If the company neglects to make the proper year-end adjustment for the expired insurance:
A)net income and assets will be understated by $30,000.
B)net income and assets will be overstated by $30,000.
C)net income and assets will be understated by $6,000.
D)net income and assets will be overstated by $6,000.

Question

Quizplus · Accepted Answer

By the end of December 2021, 10 months of the insurance policy have expired, amounting to $30,000. If no adjustment is made, expenses are understated and both net income and assets are overstated by this amount.

Masterfalls Corporation Purchased a One-Year Insurance Policy in January 2021