question 15\n5 points\nan accountant neglected to make an adjusting entry for expired prepaid insurance…
question 15\n5 points\nan accountant neglected to make an adjusting entry for expired prepaid insurance. which of the following statements is true?\na assets are understated.\nb stockholders equity is understated.\nc net income is overstated.\nd insurance expense is overstated.
Answer
Brief Explanations:
When an adjusting entry for expired prepaid insurance is not made, insurance expense is not recognized as it should be. Since expenses are under - stated, net income which is calculated as revenues minus expenses, will be overstated. Prepaid insurance is an asset, and without the adjustment, assets are overstated, and stockholder's equity (which is affected by net income) is also overstated. Insurance expense is understated not overstated.
Answer:
C. Net income is overstated.