Prepaid Insurance-Annual Adjustments
On April 1, 2014, Briggs Corp. purchases a 24-month property insurance policy for $72,000. The policy is effective immediately. Assume that Briggs prepares adjusting entries only once a year, on December 31.
Required
1. Compute the monthly cost of the insurance policy.
2. Prepare the journal entry to record the purchase of the policy on April 1, 2014.
3. Prepare the adjusting entry on December 31, 2014.
4. Assume that the accountant forgets to record an adjusting entry on December 31, 2014. Will net income for the year ended December 31, 2014, be understated or overstated? Explain your answer.