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:

Law

A system of rules that are created and enforced through social or governmental institutions to regulate behavior.

Discrimination

Unjust or prejudicial treatment of different categories of people, especially on the grounds of race, age, or sex.

Arbitration Clause

A contract provision that requires disputes arising out of the contract to be resolved through arbitration rather than through the court system.

Employment Contract

A formal agreement specifying the terms and conditions of the relationship between an employer and an employee.