Introduction to Adjusting Journal Entries and Prepaid Expenses Video Lessons

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Problem: On July 1, 2011, Waterloo Company paid the premium in advance of $2,400 for a one-year fire insurance policy on an administrative building. At that time, the full amount paid was recorded as prepaid insurance. On December 31, 2011, the end of the accounting year, the required adjusting entry was not made. Which of the following is true? a) Gross Profit is overstated b) Liabilities are overstated c) Net Income is overstated d) Cost of Goods Sold is overstated e) Working Capital is understated

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Problem Details

On July 1, 2011, Waterloo Company paid the premium in advance of $2,400 for a one-year fire insurance policy on an administrative building. At that time, the full amount paid was recorded as prepaid insurance. On December 31, 2011, the end of the accounting year, the required adjusting entry was not made. Which of the following is true?

a) Gross Profit is overstated

b) Liabilities are overstated

c) Net Income is overstated

d) Cost of Goods Sold is overstated

e) Working Capital is understated

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