26) In 2011, Company Y has received a prepayment of $2,000 for the service to be done in 2012. In 2012, Company Y has rendered the service for an amount of $1,500 but failed to record any adjusting entry. What happens to Company Y's net income in 2012?

Net Income would be overstated by $1,500.

Net income would be overstated by $500.

Net income would be understated by $500.

Net income would be understated by $1,500.

None of the choices listed

27) Unearned revenue is classified as:

revenue

a liability

an expense

an asset

None of the choices listed

28) On January 1, a company received advanced membership payments of $300 from a customer for the next 6 months. The membership is in effect immediately. By how much would the company's equity have changed by March 31?

$50

$300

$0

$150

None of the choices listed

29) Revenue recognition results in:

an increase in loans.

an increase in capital assets.

an increase in equity.

a decrease in expenses.

None of the choices listed

30) Which of the following is the correct journal entry to record one month of expired prepaid insurance?

Increase prepaid insurance and decrease cash

Increase insurance expense and decrease cash

Increase prepaid insurance and decrease insurance expense

Increase insurance expense and decrease prepaid insurance

None of the choices listed