Answer:
b. Net income and assets will be overstated by $50,000.
Step-by-step explanation:
When an amount is paid in advance for insurance, the entries posted are
Debit Prepaid Insurance
Credit Cash account (with the amount prepaid)
As the expense is incurred, entries required would be
Debit Insurance expense
Credit Prepaid Insurance (with the amount incurred)
Expired insurance at year end = 8/12 × $75000
= $50,000
This would have been recognized as an expense. When not recognized, both net income and assets will be overstated by $50,000.