The GXC made the following errors during 20x1, its first year of operations: Recorded $800 of interest expense as a debit to prepaid expense and a credit to cash. Recorded $2,000 of unearned revenue as a debit to revenue receivable and a credit to revenues. No adjusting entries were made related to these transaction entries. The effect of these errors is as follows: 20x1: Pretax Income Current Assets 1 Understated $1,200 overstated $2,800 2 Overstated $2,800 overstated $2,800 3 Overstated $2,800 overstated $2,000 4 Overstated $1,200 overstated $2,800 A) Choice 1 B) Choice 2 C) Choice 3 D) Choice Ans: B Can someone explain how are current assets overstated by 2800? It should only be 800.
You’re correct: the credit on the second transaction is incorrect, but the debit wouldn’t change.
Ah thanks, yup, it should be Dr Cash maybe instead of Dr Revenue Receivable, but that still doesn’t change the assets total. Thank you~!
My pleasure.
I’ve never heard of unearned revenue being a receivable; it’s always cash.
Haha, yup lol.
Can you help me with this one?
On January 1, 2001, JN acquired three identical trucks at a cost of $24,000 each. They have an estimated useful life of four years and a residual value of 10 percent of cost. On January 2, 2002, one truck was damaged in an accident. It was a complete loss except for salvage of $1,400 cash. The company uses group amortization for the trucks. JN has a December 31 year-end and only accounts for amortization at year-end. (a) Give the entry to record the effects of the accident January 2, 2002. (b) Give the adjusting journal entries to record amortization expense at the end of 2001 and 2002. According to me, the entry for the accident should be:** Dr Cash…1400 (salvage cash recd)****Dr Acc. Deprn…5400 (depr of year 1)****Dr Loss from Acc…17200 (balancing fig) **Cr Truck…24000 But the text debits the entire balancing figure (24000-1400 salvage=22600 to Accumulated Deprn. and doesn’t debit “Loss from Accident”) that is, Dr Cash---------------------1400 Dr Acc Amortization------22600 Cr Truck---------------------------------------24000 I know the effect is the same, but in some problems, it takes the balancing figure as “loss on disposal of asset” etc.