QUESTIONS 45 THROUGH 68 RELATE TO FINANCIAL STATEMENT ANALYSIS

58. Assume U.S. GAAP (generally accepted accounting principles) applies unless

otherwise noted.

A company receives a payment of $10,000 on 1 December, for rent on a property

for December and January. On receipt, they correctly record it as cash and

unearned revenue. If at 31 December, their year-end, they failed to make an

adjusting entry related to this payment, ignoring taxes, what is the effect on the

financial statements for the year?

A. Assets are overstated by $5,000 and Liabilities are overstated by $5,000

B. Assets are overstated by $5,000 and Owner’s equity is overstated by $5,000

C. Liabilities are overstated by $5,000 and Owners’ equity is understated by

$5,000