Question

Question 4 2 pts What happens to the accounting equation when the adjustment that recognizes accrued interest revenue is recorded? O Assets increase and liabilities increase. • Assets increase and stockholders' equity increases. Assets decrease and liabilities decrease. O Stockholders' equity increases and decreases by the same amount. Question 5 2 pts What effect does “recognizing revenue at the end of the accounting period for rent previously received in advance" have on the accounting equation for an insurance company? • Stockholders' equity increases and liabilities increase. Assets increase and stockholders' equity increases. O Assets decrease and liabilities decrease. o Liabilities decrease and stockholders' equity increases.

Answer 1

Answer 4)

Option B is correct. Asset increases and Shareholders equity Increases.

When we recognise Accrued Interest we debit the debit the Accrued Interest (which is an Asset) and credit the Interest which is income. which altemately goes the shareholders equity. So this increases the asset as well as the Shareholders Equity.

Answer 5)

Option D is correct. Liabilities decrease and stockholers' equity increases.   When we receive money in advance we book it as a liability. Now at the time if revenue recognition we must have debited the liability ( Which means decrease in liability) and Credit the Income which has now become due (which means Increase in Income) . So this results in decrease in liabilities and increase in stockholders equity because revenue ultimately goes to stockholders' equity.

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