if a company fails to adjust a prepaid rent account for rent that has expired, what effect will this have on…

if a company fails to adjust a prepaid rent account for rent that has expired, what effect will this have on that months financial statements? select answer from the options below\na assets will be overstated and net income and stockholders equity will be overstated.\nb assets will be overstated and net income and stockholders equity will be understated.\nc expenses will be overstated and net income and stockholders equity will be understated.\nd failure to make an adjustment does not affect the financial statements.

if a company fails to adjust a prepaid rent account for rent that has expired, what effect will this have on that months financial statements? select answer from the options below\na assets will be overstated and net income and stockholders equity will be overstated.\nb assets will be overstated and net income and stockholders equity will be understated.\nc expenses will be overstated and net income and stockholders equity will be understated.\nd failure to make an adjustment does not affect the financial statements.

Answer

Brief Explanations:

Prepaid rent is an asset. When rent expires, an adjusting entry should reduce prepaid rent (asset) and recognize rent expense. If not adjusted, assets remain over - stated as the reduction doesn't occur. Also, since the expense isn't recognized, net income and stockholders' equity (which is affected by net income) are over - stated as expenses are under - stated.

Answer:

A. Assets will be overstated and net income and stockholders’ equity will be overstated.