Please show work 8 pt X Company prepares monthly financial s

Please show work!!!!!!

8 pt X Company prepares monthly financial statenents. It rents space in a large office complex. On May 1, it paid rent for May and Jnne. The accountant made the proper entry on May 1 but failed to make the proper adjusting entry ou May 31. What was the effect on the May financial statements? 13 ??Tutal ??nities on May 31 were understated; total expenses for May were overstated. BO Total eqnities on May 31 were understated; total expenses for May were nderstatel CO Total equities on May 31 were overstated; total expenses for May were understated. DO Total (?\'utics on May 31 were overstated: total expenMTK for May were overstated. EO Total eqnities on May 31 were correct; total expenses for May were understated FO Total eities on May 31 were corret:total expeues for May wee overstated

Solution

when the accountant paid rent on May 1 it will be recorded as prepaid rent (an asset) At may end it need to expense the rent for May thus decreasing the prepaid rent by the same amount if it fails to record the adjusting entry the net income will be overstated and asset will be overstated as well Thus the correct answer is option C total Equities on May 31 were overstated ;total expense may be understated (net income is closed to Retained earnings which is part of Equity thus net income or Equity will be overstated ; as expense is not recorded ( rent expense not recorded) it will be understated