Question

1/ Bobby Company made payment on rent owed by erroneously increasing rent      expense and properly decreasing cash. An accrual entry for rent expense had        previously been properly recorded by debiting rent expense and crediting rent             payable. Which of the following is/are true?

1.    Net income is overstated.         B.   Prepaid rent is overstated.

3.    Rent expense is understated.   D.   Rent payable is overstated.

5.    All of the above are true.

2/ John Company pays four months’ rent at $800 per month on December 1 for           December, January, February and March. John records this with a debit to      prepaid rent and a credit to cash for $3,200. When preparing to produce    financial statements for the year ended 12/31, John’s accountant erroneously             believed the entire $3,200 was originally recorded as a debit to rent expense and made the adjustment based on that assumption. Which of the following is true?

            A.         Rent expense is overstated $3,200.

            B.         Prepaid rent is overstated $3,200.

            C.        Rent expense should be $2,400 for December.

            D.        Prepaid rent should be $800 on December 31.

            E.         None of these is true.

3/ A company recorded the $18,000 adjusting entry for accrued interest            revenues on monies it loaned by debiting liabilities and crediting assets           $18,000. Total assets are      

            A. $18,000 understated            B. $18,000 overstated                      

            C. $36,000 overstated            D. $36,000 understated             E. correctly stated

4/ A company recorded the $24,000 adjusting entry for the earning of rent received          in advance by debiting revenues and crediting assets $24,000. Total liabilities are                                                                                                                   A. $24,000 understated            B. $24,000 overstated                                               C. $48,000 overstated       D. $48,000 understated       E. correctly stated

5/.      A company recorded the $30,000 adjusting entry for the expiration of prepaid rent by debiting liabilities and crediting revenues $30,000. Total owners’ equity is             A. $30,000 understated            B. $30,000 overstated                      

            C. $60,000 overstated            D. $60,000 understated             E. correctly stated

6/.      A company recorded the $36,000 adjusting entry for the accrual of salaries       payable by debiting assets and crediting expenses $36,000. Total liabilities are                                                                                                                   A. $36,000 understated            B. $36,000 overstated                                               C. $72,000 overstated       D. $72,000 understated       E. correctly stated

7/ A company recorded the $42,000 adjusting entry for depreciation expense by        debiting revenues and crediting liabilities $42,000. Net income is                                                                                                                   A. $42,000 understated            B. $42,000 overstated                                               C. $84,000 overstated       D. $84,000 understated       E. correctly stated

Answer 1

1) D.   Rent payable is overstated.

2 )E.         None of these is true.

3 ) D. $36,000 understated

4) A. $24,000 understated

5) C. $60,000 overstated  

6) A. $36,000 understated   

7) E. correctly stated

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