Question

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 was an advance payment for 7 months of window cleaning starting March 1. The window cleaning services are provided equally over the 7 months. At May 31, calculate the balance in the unearned revenue account assuming that all adjusting entries have been properly recorded. Select one: $14,000 $ 6,000 $10,000 $ 8,000 On December 1, Optima Corp. paid $6,000 for rent expense covering December, January and February rent. On December 31, after all adjusting entries, Optima Inc. will report Prepaid Rent of: Select one: $4,000 $0 $6,000 $2,000

Answer 1

1) The Unearned Revenue account was not adjusted for work performed in the current period. What is the effect of this error?

Unearned revenue is not adjusted it means unearned revenue (liabilities) is overstated and revenue (equity is understated)

So answer is  D. The liabilities will be overstated and revenues will be understated.

2) Unearned revenue account = 14000/7*4 = 8000

So answer is d) $8000

3) Prepaid rent = 6000*2/3 = 4000

So answer is a) 4000