During an audit, a missing journal entry was discovered for prepaid insurance for 3 months at 500.00 per month. What is the impact on the financial statements.

Assets will be overstated, Expenses will be unstated, Net Icome will be overstated, and Owners Equity will be overstated as well.

When Insurance Paid in advance, then the journal entries are for below example:
E.g Insurance paid for 1 year Rs.12,000/-
01/04/2010 Pre-paid Expenses A/c ------------ Dr 12,000/-
To, Bank A/c ------------ Cr 12,000/-

On every month end
30/04/2010 Insurance A/c--------------------- Dr 1,000/-
To, Pre-paid Expenses A/C Cr 1,000/-

Last Month
31/03/2011 Insurance A/c--------------------- Dr 1,000/-
To, Pre-paid Expenses A/C Cr 1,000/-

Purchased dental equipment on January 1 for $87,650, paying $30,010 in cash and signing a $57,640, 3-year note payable (Interest is paid each December 31). The equipment depreciates $544 per month. Interest is $690 per month.

When you purchase the equipment the journal entry will be:
Debit Property, Plant, & Equipment - Dental Equipment for the total amount of purcahse
Credit Cash for the amount of cash paid
Credit Notes Payable for the difference between the purchase price and the amount paid.

At the end of the accounting period for the year of purchase (I assume it is Dec 31) you will have the following journal entries:

Interest:
Debit Interest Expense for the amount of insterest per month times 12 months
Credit Interest Payable (if not paying the interest until note is due) or Cash if paying the interest due at year end for the amount

Depreciation:
Debit Depreciation Expense for depreciation amount per month times 12 months
Credit Accumulated Depreciation - Dental Equipment for the amount

Year 2 and 3 journal entries for interest and Depreciation will be the same.

Jan 1, year 4 when the note is paid the journal entry will be:
Debit Cash for the total amount
Credit Notes Payable for the amount of the note
Credit Interest Payable for the amount of insterest paid (if interest is not paid until note is due)