Question

If the business were to over-report Rent Expenses by $5,000 what would this do to the Net Income figure? (Ctrl)- FASTFORWARD Income Statement For Month Ended December 31, 2018 Revenues Consulting revenue ($4,200 + $1,600) Rental revenue Total revenues Expenses Rent expense Salaries expense Total expenses Net income $5,800 300 $6,100 $1,000 700 1.700 $4.400 Slgie

Answer 1

Answer: If the business over-reports rent expense by $5000 then the net income decreases by $5000 i.e. from net income of $4400, it decreases to net loss of $600.

Solution :

Statement showing effect on net income :

FASTFARWARD
Income statement
For month ended December 31,2018
Revenues	Before		After
Consulting revenue	$5800		$5800
Rental revenue	$300		$300
Total revenue		$6100		$6100
Expenses
Rent expense	$1000		$6000
Salary expense	$700		$700
Total expense		$1700		$6700
Net income/(loss)		$4400		($600)

Effect on net income = -$600 - $4400

= -$5000

That means the net income decreases by $5000.

Note : as rent expense is an expense, when business shows more expense the net income decreases by the same amount of increased expense. This happens in case of no income tax. But when there is tax net income do not decrease by same amount.