Masterfalls Corporation purchased a one-year insurance policy in January 2022 for $36000.The insurance policy is in effect from March 2022 through February 2023.If the company neglects to make the proper year-end adjustment for the expired insurance:

Question

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By the end of the year, 10 months of the insurance policy have expired, which amounts to $30,000 ($36,000/12 months * 10 months). If no adjustment is made, expenses will be understated, leading to an overstatement of net income and assets by $30,000.

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