QUESTION 47 Carlin Company correctly made an adjusting entry

QUESTION 47 Carlin Company correctly made an adjusting entry on December 31, 2004, debiting Supplies Expense and crediting Supplies for $700. If the adjusting entry were not made: O Total assets at 12/31/04 would be overstated O Total assets at 12/31/04 would be understated. Total liabilities at 12/31/04 would be overstated. Total liabilities at 12/31/04 would be understated. None of the above

Solution

The correct option is (a)

If the adjusting entry \" debit supplies expense and credit supplies \" were not made, total assets at 12/31/04 would be overstated. The adjusting entry indicates that supplies of $700 were consumed in the year 2004. Hence, if it is not recognized as an expense, supplies would be overstated by $700. Since supplies is a current asset, hence assets would be overstated by $700.

Supplies has no concern with liabilities, hence option (c) and (d) cannot be correct.