Answer:
D. Assets will be overstated and net income will be overstated.
Explanation:
The adjusting entry for current month's rent would have been:
Rent expense Dr.
To Prepaid rent
The above adjusting entry would have:
- Increased the expenses.
- Increase in expenses would have decreased the net income for the period.
- Decrease in net income would have decreased the stockholders' equity.
- Also, rent expense would have decreased the prepaid rent. Thus, assets would have been decreased.
The failure to record adjusting entry would lead to:
- Understatement of expenses.
- Overstatement of Net income.
- Overstatement of stockholders' equity.
- Overstatement of assets.
