Effect of an error on financial statements
On May 1, 2009, Tennessee Corporation paid $12,000 cash in advance for a one-year lease on an office building. Assume that Tennessee records the prepaid rent and that the books are closed on December 31.
Required
a. Show the payment for the one-year lease and the related adjusting entry to rent expense in the accounting equation.
b. Assume that Tennessee Corporation failed to record the adjusting entry to reflect using the office building. How would the error affect the company's 2009 income statement and balance sheet?