Answer:
The effect shall be an understatement of expenses and overstatement of net income. The impact shall be $ 4,350.
Explanation:
The expired portion of prepaid insurance i.e 6 months from July 01 to year end needs to be adjusted. The adjustment amount shall be $ 4,350. calculated as under:
Prepaid Insurance $ 17,400
Period of benefit 24 months.
Adjustment for prepayment : 17400/24*6 = $ 4,350
The effect of not passing the entry would be an understatement of expenses and overstatement of net income
