A Company Purchased a Two-Year Insurance Policy on September 1

question 86

Multiple Choice

A company purchased a two-year insurance policy on September 1, debiting Prepaid Insurance for the full amount. If no adjusting entry is made at the end of the year, how does this affect the year-end financial statements?

• A) Overstates revenue
• B) Overstates expenses
• C) Overstates assets
• D) Understates owner's equity

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Definitions:

Diptych

An artwork consisting of two panels, often hinged together and can be closed like a book; commonly used in medieval and Renaissance times for religious paintings.

Fourth-Century Rome

A period marked by significant transformation within the Roman Empire, characterized by political instability and the spread of Christianity.

Catacomb

Underground cemetery consisting of a subterranean network of tunnels and rooms with recesses for tombs, used primarily in ancient Rome.

Praying

The act of communicating with a deity or spiritual being in thought or out loud, often seeking guidance, assistance, or expressing gratitude.