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On May 1, 2019 your company takes out a 2 year insurance policy covering the period May 1, 2019 through April 30,2021 for $2,400 per year and prepays the entire $4,800 amount. The following journal entry is made on May 1 to record this: 501 Prepaid Insurance 4,800. Cash 4,800
At year-end you discover the following Adjusting journal entry has been made related to this prepaid policy: 12/31 Insurance Expense 3,600 Prepaid Insurance 3,600
A. The correcting entry to be made on Dec 31st. (Assume no entries were made between 501 and the adjusting entry on 1231 above).
B. The impact* to the 1. Income Statement and 2. Balance Sheet if this correcting entry in A. above had NOT been made( to the 1. Income Statement and 2. Balance Sheet if this correcting entry in A. above had NOT been made(*Impact means either understatement or overstatement to balance sheet and/or income statement)
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