Final answer:
Lawyers Inc. would defer revenue recognition, and their assets and liabilities would increase after receiving a $12,000 retainer until services are provided.
Step-by-step explanation:
When Lawyers Inc. accepted a $12,000 retainer, recognizing this event would defer the recognition of revenue (A), cause the company's assets to increase (B), and potentially cause the company's liabilities to increase (C) until the service is performed; meaning that All of the answers are correct (D). In accounting, such prepayments are recorded as liabilities (unearned revenue) on the balance sheet, because they are an obligation to provide services in the future. As services are provided over time, revenue is recognized incrementally, and the liability decreases while earned revenue increases.
To provide further clarification, this transaction increases the company's liabilities as a result of creating an obligation to provide future services. Once Lawyers Inc. begins to perform said services, this liability will be reduced, and revenue will be recognized gradually on their income statement, adhering to the matching principle in accounting.