Assume a Company Is in the Business of Renting Office

question 10

Multiple Choice

Assume a company is in the business of renting office space to tenants. In December, the company rented an office to a tenant. It has not yet received the rent payment for December, but it is confident that it will receive the money in January. It has not yet made any entry related to the December rent. Under accrual accounting, the company should make which of the following adjustments, if any, to its records, as of the end of December?

• A) No adjustment is needed, since the rent has not been collected.
• B) It should record an increase in assets, an increase in expenses, and a decrease in equity.
• C) It should record an increase in assets, an increase in revenues, and an increase in equity.
• D) It should record a decrease in liabilities, an increase in revenues, and an increase in equity.
• E) It should record a decrease in liabilities, a decrease in expenses, and a decrease in equity.

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Definitions:

Service Department Expenses

Costs associated with departments that support the primary operations of a company, like IT support, human resources, and maintenance.

Activity Base

A measure used as a foundation for allocating costs in activity-based costing, representing transactions or events that cause costs to be incurred.

Payroll Checks

Checks issued to employees as payment for their services, representing wages or salaries.

Activity Base

A measure or factor used as a basis for allocating costs in managerial accounting, often related to the volume of production activity or the level of service provided.