James & Younger Corporation purchased a one-year insurance policy in February 2021 for $42,000. The insurance policy is in effect from March 2021 through February 2022. If the company neglects to make the proper year-end adjustment for the expired insurance:

net income and assets will be understated by $35,000.

net income and assets will be overstated by $35,000.

net income and assets will be understated by $7,000.

net income and assets will be overstated by $7,000.