question 9\njames & younger corporation purchased a one - year insurance policy in january 2027 for $42,000…

question 9\njames & younger corporation purchased a one - year insurance policy in january 2027 for $42,000. the insurance policy is in effect from march 2027 through february 2028. if the company neglects to make the proper year - end adjustment for the expired insurance\na net income and assets will be understated by $35,000.\nb net income and assets will be understated by $7,000.\nc net income and assets will be overstated by $35,000.\nd net income and assets will be overstated by $7,000.

question 9\njames & younger corporation purchased a one - year insurance policy in january 2027 for $42,000. the insurance policy is in effect from march 2027 through february 2028. if the company neglects to make the proper year - end adjustment for the expired insurance\na net income and assets will be understated by $35,000.\nb net income and assets will be understated by $7,000.\nc net income and assets will be overstated by $35,000.\nd net income and assets will be overstated by $7,000.

Answer

Explanation:

Step1: Calculate monthly insurance expense

The insurance policy cost is $42,000 for 12 - month period. So the monthly expense is $\frac{42000}{12}= 3500$.

Step2: Determine expired months in 2027

The policy is in - effect from March 2027 through February 2028. In 2027, the expired months are from March to December, which is 10 months.

Step3: Calculate expired insurance expense in 2027

The expired insurance expense in 2027 is $3500\times10 = 35000$.

Step4: Analyze the impact of not making adjustment

If the company does not make the proper year - end adjustment for the expired insurance, it means it has not recognized an expense of $35,000$. Since expenses reduce net income and assets (pre - paid insurance is an asset which should be reduced as it expires), not recognizing this expense will overstate net income and assets by $35,000$.

Answer:

C. net income and assets will be overstated by $35,000.