PRC-1 · Chapter 4 · Question 21 of 100
Total assets will be incorrectly overstated if an accountant completely omits the year-end adjustment for which of the following?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Expired portion of prepaid insurance
Explanation
Prepaid insurance is an asset. As it expires over time, an adjusting entry must reduce the asset and increase expense. Omitting this adjustment leaves the asset at its original, overstated value.
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