Masterfalls Corporation purchased a one-year insurance policy in January 2013 for $30,000. The insurance policy is in effect from March 2013 through February 2014. If the company neglects to make the proper year-end adjustment for the expired insurance:

Question

Quizplus · Accepted Answer

By the end of the year, 10 months of the insurance policy have expired (March to December), which amounts to $25,000. If no adjustment is made, expenses are understated, leading to an overstatement of net income and assets by $25,000.

Masterfalls Corporation Purchased a One-Year Insurance Policy in January 2013