Callahan Corporation recorded an adjusting entry using T-accounts as follows: Which of the following reflects how this adjustment affects the company's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question

Callahan Corporation recorded an adjusting entry using T-accounts as follows:   Which of the following reflects how this adjustment affects the company's financial statements?

A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

The adjustment recorded would increase both the company's assets and expenses, causing a decrease in net income and retained earnings. This would be reflected in Option B, where cash and rent expense increase, the net income decreases, and retained earnings decrease. Option A shows a decrease in assets, but the adjustment recorded would actually increase assets. Option C shows an increase in both assets and liabilities, which would not be the case with this adjustment. Option D shows an increase in liabilities, but the adjustment recorded would not have affected liabilities.

Callahan Corporation Recorded an Adjusting Entry Using T-Accounts as Follows