6. On December 31, 2013, Cutoff Corporation reported total liabilities of s215,0
ID: 2599931 • Letter: 6
Question
6. On December 31, 2013, Cutoff Corporation reported total liabilities of s215,000 prior to the following adjusting entries Accrued expenses totaled $20,000 Expired insurance which was prepaid totaled $24,000 Rent revenue earned was $16,000; the rent was prepaid by the tenant and credited to unearned rent revenue Depreciation expense was $18,000 Accrued service revenues totaled $40,000 · How much are Cutoffs total liabilities after adjusting entries? a. Total liabilities $215,000+$18,000 b. Total liabilities $215,000+$18,000+20,000 c. Total liabilities = $215,000 + $ 16,000-$18,000 d. Total liabilities $215,000+$20,000-$16,000 e. None of the aboveExplanation / Answer
Answer = D
Accrued expenses are the expenses which are due but not paid so they will be Added while calculating Current Liabilities.
Expired Insurance which is prepaid means the expenses are prepaid and now the due date have been completed i.e. we have used the services so they are NOT considered while calculating Current Liabilities
Rent revenue was prepaid by the tenant but we credited to unearned rent revenue which is part of Current Liability so as a rectification of error we will Deduct this from Current Liability.
Depreciation is an expense which will be deducted from the asset so this will have NO impact on Current Liability.
Accrued Service Revenue are the revenue which is earned but not received and is a part of Current Assets.
So
Current Liability = Opening Current Liability + Accrued expense - Error
Current Liability = $215,000 + 20,000 - 16,000
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