When Making the Adjustment for Prepaid Insurance,instead of Writing Off

question 48

Multiple Choice

When making the adjustment for prepaid insurance,instead of writing off only the time that has passed,the entire policy was written off.This would:

• A)overstate the assets.
• B)overstate the liabilities.
• C)understate net income.
• D)None of these is correct.

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Definitions:

Investments-Tetter Company Bonds

Refers to financial assets representing the purchase of Tetter Company's debt securities as an investment.

Comprehensive Income

A measure of all changes in equity of a company that result from recognized transactions and other economic events of the period other than those resulting from investments by and distributions to owners.

Retained Earnings

Profits that a company keeps or retains after paying dividends to shareholders, which are often reinvested in the business or used to pay down debt.

Accumulated Other Comprehensive Income

The cumulative effects of other comprehensive income items reported separately in the Stockholders’ Equity section of the balance sheet.