Effect of an error on financial statements
On May 1,2011, Dobler Corporation paid $9,600 to purchase a 24-month insurance policy. Assume that Dobler 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 adjusting entry to recognize insurance expense in the accounting equation.
b. Assume that Dobler Corporation failed to record the adjusting entry to reflect the expiration of insurance. How would the error affect the Company’s 2011 income statement and balance sheet?
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