A Law Firm Received $2,000 Cash for Legal Services to Be

question 16

Multiple Choice

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Legal Fees. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause

• A) expenses to be overstated.
• B) net income to be overstated.
• C) liabilities to be understated.
• D) revenues to be understated.

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Definitions:

Comparative Advantage

The ability of a country, company, or individual to produce a particular good or service at a lower opportunity cost than others, leading to more efficient trade and production.

Opportunity Cost

The value of the next best alternative forgone as the result of making a decision.

Production Possibility Frontier

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, technology).

Absolute Advantage

The ability of an entity to produce a good or service more efficiently than its competitors, leading to greater output with the same resources.