1. When it paid its rent in advance, a company recorded Prepaid Rent. As of the end of the accounting year, the prepayment had expired. If no adjustment is made to record this expiration, which of the following will occur?

a. Assets and expenses will be overstated.

b. Assets and expenses will be understated.

c. Assets will be overstated and expenses will be understated.

d. Assets will be understated and expenses will be overstated.

2. Which of the following would not be considered an operating activity?

a. Purchase equipment for cash

b. Purchase supplies on account

c. Sell goods to customers

d. Pay employees for work completed