Answer:
Net income and the assets will be overstated by the amount of $40,000
Explanation:
On purchasing the insurance, the accounts which got affected are the Net income as as the net income will decrease because the cash is paid against the insurance. And the assets will be affected on buying the insurance.
If the company neglects to make proper adjustment for the insurance, it will lead to overstated balance of the assets account as well as the net income of the company with the balance of $40,000 because it came in effect on April 30.
Working:
Amount = $60,000 / 12
= $5,000
For 4 months,it will be:
= $5,000 × 4
= $20,000
