QUESTION 1 2 pointsSave Answer You have recently been hired by ABC, Inc. to revi

Question

QUESTION 1 2 pointsSave Answer You have recently been hired by ABC, Inc. to review its financial statements prepared for the years ending December 31, Y1 and Y2. Your review reveals an error: A three-year insurance policy was purchased for $12,600 on March 31, Y1 and the full amount was debited to a nominal account. No adjusting entry had ever been made. Required:Determine the effect of the error(s) on the Y1 financial statements, and, if not corrected, the Y2 financial statements. Use O for overstated; U for understated, and NE for not effected. If there is an effect, state the dollar amount. NOTE: DO NOT SPACE BETWEEN THE LETTER AND DOLLARAMOUNT; DON'T USE COMMAS. Example: IF YOURANSWER IS "OVERSTATED BY 1,000", ENTER YOUR ANSWER AS O1o00. December 31: Assets Y1 Liabilities Y1 Net Income Y1 Owner's Equity Y1 Assots Y2 Liabilities Y2 Net Income Y2 Owner's Equity Y2

Explanation / Answer

Insurance expense in Year 1 = 12600/36*9 = $3150 Assets, net income and Owner's equity understated in Y 1=12600-3150 = $9450 Insurance expense in Year 2 = 12600/36*12 = $4200 Assets and Owner's equity understated in Y 1=12600-3150-4200 = $5250 Assets Y1 Liabilities Y1 Net income Y1 Owner's equity Y1 Assets Y2 Liabilities Y2 Net income Y2 Owner's equity Y2 U9450 NE U9450 U9450 U5250 NE O4200 U5250

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