In its 2009 income statement, WME reported $58,000 for insurance expense. WME paid $72,000 in insurance premiums during 2009. In its reconciliation schedule, WME should:

Question

Quizplus · Accepted Answer

The reconciliation schedule under the indirect method adjusts for changes in non-cash accounts such as prepaid insurance. Since prepaid insurance increased by $14,000 ($72,000 - $58,000), the adjustment to net income would be negative (subtracting from reported net income) for the increase in prepaid insurance. Therefore, choice C is the correct answer.

In Its 2009 Income Statement, WME Reported $58,000 for Insurance