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
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