X Company prepares monthly financial statements. The balance in Unearned (Deferr

Question

X Company prepares monthly financial statements. The balance in Unearned (Deferred) Revenue on October $1,290. As of October 31, $314 of the $1,290 had been earned, but the accountant failed to record the appropriate adjust entry. What was the effect on the October 31 Balance Sheet? Total assets would be understand by $314. Retained Earnings would be understated by $976. Total liabilities would be overstated by $314. Retained Earnings would be overstated by $314. Total liabilities would be overstated by $976. Total liabilities would be understated by $976.

Explanation / Answer

C. Total liabilities would be overstated by $314

Note;-  Unearned balance on 1st October = $1290

Amount recieved = -$314

Balance at end on 31st October = $976

Add: But failed to record revenue = $314 (Amount of earned revenue will be added back to liability and liability is overstated by $314)

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