If a Required Prepaid Adjustment Had Not Been Made, the Financial

question 113

Multiple Choice

If a required prepaid adjustment had not been made, the financial statements would have been affected as follows:

• A)net income overstated, assets overstated, liabilities unaffected, and owner's equity overstated.
• B)net income understated, assets unaffected, liabilities overstated, and owner's equity understated.
• C)net income overstated, assets understated, liabilities understated, and owner's equity unaffected.
• D)net income understated, assets understated, liabilities understated, and owner's equity unaffected.

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Definitions:

Variable Cost

Payments that adjust in direct relation to the amount of production or sales, including raw materials and direct labor.

Total Variable Cost

The sum of all variable costs that change with the level of production, including materials, labor, and variable overhead.

Units Sold

The total quantity of products sold by a company during a specific period.

Variable Cost

Variable expenses that are closely aligned with the level of production or the volume of sales, for example, raw materials and direct labor.