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13 May, 14:59

The CHS Company paid $30,000 cash to its landlord on November 1, 2019 for rent covering the six-month period from November 1, 2019 through April 30, 2020. The books are adjusted only at year-end. Which of the following does not correctly describe the effect on CHS Company's financial statements of the December 31, 2019 adjusting entry?

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  1. 13 May, 15:20
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    Income Statement:

    rent expense 10,000

    Balance sheet:

    prepaid rent 20,000

    decrease by 10,000

    cash flow: no effect

    Explanation:

    The adjusting entry will accrued the rent expense for the months of November and December.

    As 6 month are worth 30,000.

    Then a month will be 5,000.

    two month: 10,000

    The effect of the adjusting entry decreases the prepaid rent by 10,000 leaving a 20,000 balance
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