QUESTION 1 2 pointsSave Answer You have recently been hired by ABC, Inc. to revi

Question

QUESTION 1 2 pointsSave Answer You have recently been hired by ABC, Inc. to review its financial statements prepared for the years ending December 31, Y1 and Y2. Your review reveals an error: A three-year insurance policy was purchased for $12,600 on March 31, Y1 and the full amount was debited to a nominal account. No adjusting entry had ever been made. Required:Determine the effect of the error(s) on the Y1 financial statements, and, if not corrected, the Y2 financial statements. Use O for overstated; U for understated, and NE for not effected. If there is an effect, state the dollar amount. NOTE: DO NOT SPACE BETWEEN THE LETTER AND DOLLARAMOUNT; DON'T USE COMMAS. Example: IF YOURANSWER IS "OVERSTATED BY 1,000", ENTER YOUR ANSWER AS O1o00. December 31: Assets Y1 Liabilities Y1 Net Income Y1 Owner's Equity Y1 Assots Y2 Liabilities Y2 Net Income Y2 Owner's Equity Y2

Explanation / Answer

Insurance expense in Year 1 = 12600/36*9 = $3150 Assets, net income and Owner's equity understated in Y 1=12600-3150 = $9450 Insurance expense in Year 2 = 12600/36*12 = $4200 Assets and Owner's equity understated in Y 1=12600-3150-4200 = $5250 Assets Y1 Liabilities Y1 Net income Y1 Owner's equity Y1 Assets Y2 Liabilities Y2 Net income Y2 Owner's equity Y2 U9450 NE U9450 U9450 U5250 NE O4200 U5250

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.