X Company prepares monthly financial statements. The balance in Unearned (Deferr
ID: 2501576 • Letter: X
Question
X Company prepares monthly financial statements. The balance in Unearned (Deferred) Revenue on October 1 is $1,174. As of October 31, $362 of the $1,174 had been earned, but the accountant failed to record the appropriate adjusting entry. What was the effect on the October 31 Balance Sheet?
Retained Earnings would be overstated by $362.
Total liabilities would be overstated by $812.
Total liabilities would be overstated by $362.
Retained Earnings would be understated by $812.
Total liabilities would be understated by $812.
Total assets would be understated by $362.
THE ANSWER IS NOT RETAINED EARNINGS WOULD BE OVERSTATED BY $362
Explanation / Answer
Total liabilities would be overstated by $362. ,
Note:- Unearned Revenue balance as on 1st october = 1174
less; Revenue recorded during the month = 362
Balance at end = 812 ( Correct balance)
Add: Failed to record earned revenue = 362 ( overstating balance )
Balance as on 31st October = $1174
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