Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

Financial Accounting

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

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Multiple Choice

Which of the following is required to compute interest expense for a prepaid expense? Select the correct answer.

Principal amount, interest rate, and time period

Only the interest rate

Only the principal amount

Only the time period

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Verified step by step guidance

Understand the concept of interest expense: Interest expense is the cost incurred by an entity for borrowed funds. It is calculated using the formula: Interest Expense = Principal × Interest Rate × Time Period.

Identify the components required to compute interest expense: The formula requires three key components: the principal amount (the initial amount of money), the interest rate (the percentage charged on the principal), and the time period (the duration for which the interest is calculated).

Analyze the options provided in the question: The correct answer must include all three components—principal amount, interest rate, and time period—since all are necessary to compute interest expense.

Eliminate incorrect options: Options that mention only one or two of the components (e.g., 'Only the interest rate,' 'Only the principal amount,' or 'Only the time period') are incomplete and cannot be correct.

Select the correct answer: The option that includes 'Principal amount, interest rate, and time period' is the correct choice, as all three are required to compute interest expense.