The CHS Company paid $30,000 cash to its landlord on November 1, 2016 for rent covering the six-month period from November 1, 2016 through April 30, 2017. The books are adjusted only at year-end. Which of the following does not correctly describe the effect on CHS Company's financial statements of the December 31, 2016 adjusting entry?

Question

Quizplus · Accepted Answer

The adjusting entry for prepaid rent at year-end would decrease the prepaid rent account by $10,000 (half of the $30,000 payment made in November), and increase rent expense by $10,000. This would result in a decrease in net income by $10,000, but the stockholders' equity would not be affected by this adjusting entry.

The CHS Company Paid $30,000 Cash to Its Landlord on November