On June 1, Year 1, Ark Corporation paid $8,400 to purchase a 24-month insurance policy. Assume that

Question:

On June 1, Year 1, Ark Corporation paid $8,400 to purchase a 24-month insurance policy. Assume that Ark records the purchase as an asset and that the books are closed on December 31.

Required
a. Show the purchase of the insurance policy and the related year-end adjustment to recognize insurance expense in the accounting equation.
b. Assume that Ark Corporation failed to record the year-end adjustment to reflect the expiration of insurance. How would the error affect the company’s Year 1 income statement and balance sheet?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...

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