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 is $1,278. As of October 31, $373 of the $1,278 had been earned, but the accountant failed to record the appropriate adjusting entry. What was the effect on the October 31 Balance Sheet?

A. Total assets would be understated by $373.
B. Retained Earnings would be understated by $905.
C. Total liabilities would be overstated by $373.
D. Retained Earnings would be overstated by $373.
E. Total liabilities would be overstated by $905.
F. Total liabilities would be understated by $905.

Explanation / Answer

As adjusting entry is not made, revenue undesrstated by $373 and liabilities overstated by $373. Hence, option C is correct

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