If a Company Fails to Adjust a Prepaid Rent Account

question 141

Multiple Choice

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

• A)Failure to make an adjustment does not affect the financial statements.
• B)Expenses will be overstated and net income and stockholders' equity will be under- stated.
• C)Assets will be overstated and net income and stockholders' equity will be understated.
• D)Assets will be overstated and net income and stockholders' equity will be overstated.

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Definitions:

Support Department

An organizational unit that provides the necessary services for the operations departments but does not directly engage in the core activities of the business.

Single Plantwide Rate

A costing method where a single overhead rate is used to allocate all manufacturing overhead costs uniformly across all products, regardless of the department where costs are incurred.

Multiple Production Rates

Refers to the capability of a manufacturing process or facility to operate at various output rates to meet different levels of demand.

Activity-Based Costing

A costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each.