Which of the Following Reflects the Balances of Prepayment Accounts

question 121

Multiple Choice

Which of the following reflects the balances of prepayment accounts prior to adjustment?

• A)Statement of financial position accounts are understated and statement of income accounts are understated.
• B)Statement of financial position accounts are overstated and statement of income accounts are overstated.
• C)Statement of financial position accounts are overstated and statement of income accounts are understated.
• D)Statement of financial position accounts are understated and statement of income accounts are overstated.

---

Definitions:

Deferred Annuity

An annuity contract that delays payments until the investor elects to receive them, often until retirement.

Payments

Amounts of money paid by one party to another, either as part of a one-time transaction or in installments over time.

Compounded Annually

This refers to the method of calculating interest where the interest earns on both the initial principal and the interest that has been accrued from previous periods, applied once a year.

Compounded Quarterly

Interest calculation method where interest is added to the principal balance of an investment or loan on a quarterly basis.