If a Company Records Prepayment of Expenses in an Asset

question 233

Multiple Choice

If a company records prepayment of expenses in an asset account, the adjusting entry when all or part of the prepaid asset is used or expired would:

• A) Result in a debit to a liability and a credit to an asset account.
• B) Decrease cash.
• C) Result in a debit to an expense and a credit to an asset account.
• D) Cause an accrued liability account to exist.
• E) Cause an adjustment to prior expense to be overstated and assets to be understated.

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Definitions:

Stock Dividend

A payment made by a corporation to its shareholders in the form of additional shares, rather than cash.

Earnings Per Share

A company's profit divided by the outstanding shares of its common stock, showing the portion of a company's profit allocated to each share of stock.

Stock Dividends

A form of dividend payment made by a corporation to its shareholders in additional shares rather than cash, affecting the company's stock price and equity structure.

Stock Exchange Requirements

Stock exchange requirements refer to the set of rules and standards that companies must meet and maintain to have their shares listed and traded on a particular stock exchange.