Question

Which of the following statements is false?

a. If supplies consumed totaled $3,000 and no adjustments were made, both assets and stockholder's equity would be overstated by $3,000.
b. If an accountant failed to record depreciation expense of $1,500, both assets and stockholder's equity would be overstated by $1,500.
c. If insurance of $450 expired during the month and no adjustments were made, both assets and stockholder's equity would be overstated by $450.
d. A company paid for an insurance premium of $6,000 on January 1. The insurance is for a year. Failing to make adjustments for the month of January would overstate assets and stockholder's equity by $6,000.
e. All of the statements are true.

Answer 1

Answer: d. A company paid for an insurance premium of $6,000 on January 1. The insurance is for a year. Failing to make adjustments for the month of January would overstate assets and stockholder's equity by $6,000.

Step-by-step explanation:

If a company were to pay $6,000 for Insurance for the YEAR in January, this would be recorded as a PREPAID EXPENSE.

This Prepaid Expense will then be apportioned per month over the year to each month as expenses of $500.

Failing to make adjustments for the month of January would not overstate assets and stockholder's equity by $6,000 but by $500.