Question
Murray Company pays four months of rent at $850 per month on November 30, 20X1 for December, January, February and March. Murray records this with
Murray Company pays four months of rent at $850 per month on November 30, 20X1 for December, January, February and March. Murray records this with a debit to rent expense and a credit to cash for $3,400. When preparing 20X1 financial statements, Murray's accountant erroneously believed the entire $3,400 was originally recorded as a debit to prepaid rent and a credit to cash and made the adjustment based on that assumption. Which of the following will not occur?
A. Net income will be understated $3,400.
B. Prepaid rent will be overstated $3,400.
C. Rent expense will be overstated $3,400.
D. Retained earnings will be understated $3,400.
E. All of these will occur.
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