James & Younger Corporation purchased a one-year insurance policy in February 2021 for $42,000.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 $35,000.
B)net income and assets will be overstated by $35,000.
C)net income and assets will be understated by $7,000.
D)net income and assets will be overstated by $7,000.

Question

Quizplus · Accepted Answer

By the end of December 2021, 10 months of the insurance policy have expired, amounting to $35,000. If no adjustment is made, expenses are understated, leading to overstated net income and assets.

James & Younger Corporation Purchased a One-Year Insurance Policy in February