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?

A) Net income decreases $10,000.
B) Prepaid rent decreases $10,000.
C) Rent expense increases $10,000.
D) Stockholders' equity increases $10,000.

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Violeta Barahona · Accepted Answer

Final Answer : D, Explanation :  The adjusting entry at December 31,2019 will decrease Prepaid rent by $10,000 and increase Rent expense by $10,000, resulting in a decrease in net income by $10,000. However, Stockholders' equity is not affected by this transaction as it is not an equity transaction but rather a shift from one asset account to an expense account. Therefore, choice D does not correctly describe the effect on CHS Company's financial statements.

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