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28 December, 09:33

At January 31, the end of the first month of the year, the usual adjusting entry transferring expired insurance to an expense account is omitted. Which items will be incorrectly stated, because of the error, on (a) the income statement for January and (b) the balance sheet as of January 31? Also indicate whether the items in error will be overstated or understated.

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  1. 28 December, 10:42
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    (a) Income statement:

    Insurance expense - understated

    net income - overstated

    (b) balance sheet:

    prepaid insurance - overstated

    stockholders equity - overstated
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