Tacoma Corporation purchased a one-year insurance policy in January 2022 for $57,000. The insurance policy is in effect from May 2022 through April 2023. If the company neglects to make the proper year-end adjustment for the expired insurance on December 31, 2022,

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The insurance policy covers 12 months from May 2022 to April 2023. By December 31, 2022, 8 months of the policy have expired. The cost for these 8 months is (8/12) * $57,000 = $38,000. If the adjustment is not made, expenses are understated, leading to overstated net income and assets by $38,000.

Tacoma Corporation Purchased a One-Year Insurance Policy in January 2022