15. Part I A broadcasting company failed to make a year-end accrual of $400,000

Question

15. Part I

A broadcasting company failed to make a year-end accrual of $400,000 for fines due to a violation of FCC rules. Its tax rate is 30%. As a result of this error, net income was:

Multiple Choice

Unaffected.

Overstated by $120,000.

Overstated by $400,000.

Overstated by $280,000.

Part II

C. Good Eyeglasses overstated its inventory by $30,000 at the end of 2018.

In 2019, the discovery of this error, before adjusting or closing entries, would require:

Multiple Choice

None of these answer choices are correct.

A debit to inventory of $30,000.

A prospective adjustment in the 2019 income statement.

An increase in retained earnings.

Explanation / Answer

Q.15) As the fines paid for violation of the laws are not tax deductible ..

So the net income is overstated by $400000( 1 - 0% ) i.e $4,00000

So, correct option is C i.e. " Overstated by $4,00,000 "

Part 2 )

As the inventory is overstated by $30,000

The correct adjusting entry would be :-

Retained Earnings ( Dr.) $30000, Inventory ( Cr. ) $30000

So , in the option there is no such option which make it correct adjusting entry

So Correct option is A i.e. " None of these answers are correct " .

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