Part $4$

On April $1,2023,$ Scamp Corp. purchases a $24-$month property insurance policy for $$72,000.$ The policy is effective immediately. The bookkeeper charged the insurance to insurance expense when posting the purchase. Assume that Scamp prepares adjusting entries only once a year, on December $31.$

$4|Page|$

Required

Prepare the adjusting entry on December $31,2023.$

$2$ Assume that the accountant forgets to record an adjusting entry on December $31,2023.$ Will net income for the year ended December $31,2023,$ be understated or overstated? By what amount?

Part $5$

Fox & Hounds collected $$9,000$ from a customer on April $1$ and agreed to provide legal services during the next three months. Fox & Hounds expects to provide an equal amount of services each month.

Required

Prepare the journal entry for the receipt of the customer deposit on April I.

Prepare the adjusting entry on April $30.$

Would net income be overstated or understated for April if this entry is not recorded?