Question

If an entity fails to adjust a Prepaid rent account for rent that has expired, what...

If an entity fails to adjust a Prepaid rent account for rent that has expired, what effect will this have on that month's financial statements?

Select one:

a. Failure to make an adjustment does not affect the financial statements.

b. Expenses will be overstated and profit and equity will be understated.

c. Assets will be overstated and profit and equity will be understated.

d. Assets will be overstated and profit and equity will be overstated.

Homework Answers

Answer #1

Answer:- correct option is (d) assets will be overstated and profit and equity will be overstated.

Explanation:- prepaid expenses are classified as an assets on a company balance sheet since their balance represent a benefit that will used in future period. If the company fail to adjust prepaid rent this means that the company expenses have been understated by that amount resulting in overstated income by that amount it also means that the prepaid expenses asset account on the company balance sheet has been overstated by that amount . fail to adjust the prepaid expenses will effect the company balance sheet and income statement in such a way that assets will be overstated and profit and equity will be overstated.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An entity fails to adjust the Revenue received in advance account for rent that has been...
An entity fails to adjust the Revenue received in advance account for rent that has been earned, what effect will this have on the financial statements? Select one: a. Assets will be overstated and revenues will be understated. b. Liabilities will be understated and revenues will be understated. c. Liabilities will be overstated and revenues will be understated. d. Assets will be understated and revenues will be understated.
What is the effect on the financial statements when a company fails to accrue wages expense...
What is the effect on the financial statements when a company fails to accrue wages expense at year-end? (a) Net income is overstated and liabilities are understated. (b) Expenses are understated and stockholders' equity is understated (c) Expenses and liabilities are both overstated. (d) Net income is overstated and liabilities are properly reported.
A receipt of $12,600 cash from a customer as a payment on their account was incorrectly...
A receipt of $12,600 cash from a customer as a payment on their account was incorrectly credited to Rent Revenue. What is the effect of this error on the financial statements of the company? Multiple Choice Assets are understated by $12,600 and owners' equity is understated by $12,600. Assets are overstated by $12,600 and owners' equity is overstated by $12,600. Assets are understated by $12,600 and liabilities are understated by $12,600. Assets are overstated by $25,200 and owners' equity is...
The Unearned Revenue account was not adjusted for work performed in the current period. What is...
The Unearned Revenue account was not adjusted for work performed in the current period. What is the effect of this error? Select one: A. The assets will be overstated and liabilities will be overstated. B. The liabilities will be understated and revenues will be understated. C. The assets will be understated and expenses will be understated. D. The liabilities will be overstated and revenues will be understated. Jerry’s Window Service received $14,000 from a client on February 20. This payment...
1/ Bobby Company made payment on rent owed by erroneously increasing rent      expense and properly...
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?    Net income is overstated.         B.   Prepaid rent is overstated.    Rent expense is understated.   D.   Rent payable is overstated.    All of the above are true. 2/ John Company pays four months’ rent at $800 per month...
1) In 2011, Company Y has received a prepayment of $2,000 for the service to be...
1) In 2011, Company Y has received a prepayment of $2,000 for the service to be done in 2012. In 2012, Company Y has rendered the service for an amount of $1,500 but failed to record any adjusting entry. What happens to Company Y's net income in 2012? a) Net income would be overstated by $1,500. b) Net income would be overstated by $500. c) Net income would be understated by $500. d) Net income would be understated by $1,500....
a.?? Details of Prepaid Rent are shown in the? account:                                 &nbsp
a.?? Details of Prepaid Rent are shown in the? account:                                                 Prepaid Rent Jan 1 Bal. 5,500 Mar 31 11,000 Sept 30 11,000 LumberLumber Contractors pays office rent semiannually on March 31 and September 30. At December? 31, part of the last payment is still available to cover January to March of the next year. No rent expense was recorded during the year. b. LumberLumber Contractors pays its employees each Friday. The amount of the weekly payroll is $ 5...
When a service has been performed but no cash has been received, which of the following...
When a service has been performed but no cash has been received, which of the following statements is true? Select one: a. The entry includes a debit to Accounts payable. b. The entry includes a credit to Unearned revenue. c. The entry includes a debit to Accounts receivable. d. No journal entry is made. Adjusting entries are: Select one: a. not necessary if the accounting system is operating properly. b. made to Statement of Financial Position accounts only. c. usually...
Which of the following statements is true?    Select one: a. We can only find the...
Which of the following statements is true?    Select one: a. We can only find the opening balance of Capital on the 10-column worksheet when there is no owner’s drawings. b. We can only find the opening balance of Capital on the 10-column worksheet when there is no owner’s contribution. c. We can always find the opening balance of Capital on the 10-column worksheet. d. We can never find the opening balance of Capital on the 10-column worksheet. Using accrual...
1. A credit sale of $1100 is made on July 15, terms 2/10, net/30, on which...
1. A credit sale of $1100 is made on July 15, terms 2/10, net/30, on which a return of $100 is granted on July 18. What amount is received as payment in full on July 24? $980 $1100 $1050 $1078 2. Which one of the following is not a justification for adjusting entries? Adjusting entries are necessary to ensure that the expense recognition principle is followed. Adjusting entries are necessary to ensure that the revenue recognition principle is followed. Adjusting...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT