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Question: In making adjusting entries at the end of its accounting period, Gomez Consulting failed to record $1,600 of insurance coverage that had expired. This $1,600 cost had been initially debited to the Prepaid Insurance account. The company also failed to record accrued salaries expense of $1,000. As a result of these two oversights, the financial statements for the reporting period will [choose one]
(1) understate assets by $1,600;
(2) understate expenses by $2,600;
(3) understate net income by $1,000; or
(4) overstate liabilities by $1,000.
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