The following horizontal financial statements model shows the effects of recording the expiration of insurance in two different circumstances. One circumstance represents the expiration of insurance on a factory building. The other circumstance represents the expiration of insurance on an administrative building. The effects of each event have been recorded using the letters (I) for increase, (D) for decrease, and (NA) for no effect.

Required
a. Identify the event that represents the expiration of insurance on the factory building.
b. Explain why recognizing the expiration of insurance on a factory building affects financial statements differently than recognizing the expiration of insurance on an administrative building.

Transcribed Image Text:

Assets Equity Event No. Prepaid Cash + Insurance + Inventory Com. Ret. Exp. Net Inc. Stk. + Ear. Rev. !! NA NA 1. NA NA NA NA NA NA D 2. NA NA 2.