A company shows a $600 balance in Prepaid Rent in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired rent of $200. This adjusting entry results in:
A) $200 of prepaid insurance.
B) $200 difference between the debit and credit columns of the Unadjusted Trial Balance.
C) An error in the financial statements.
D) $200 decrease in net income.
E) $200 increase in net income.

Question

Quizplus · Accepted Answer

The adjusting entry for the expired rent will decrease the Prepaid Rent account by $200, resulting in a balance of $400 ($600 - $200). This decrease in the asset account will decrease net income by $200, as rent expense is recognized. Therefore, the correct choice is D - $200 decrease in net income.

A Company Shows a $600 Balance in Prepaid Rent in the Unadjusted