Part A: Company\'s accountant made adjusting entries at the end of the period fo
ID: 2458390 • Letter: P
Question
Part A: Company's accountant made adjusting entries at the end of the period for the following reasons:- $1,702 of unpaid interest on a bank loan,
- $548 of wages that were earned by employees but not paid, and
- $1,680 of insurance that expired.
Part B: X Company, a merchandiser, purchased inventory on account. The accountant incorrectly recorded the transaction as an increase in Inventories and a decrease in Retained Earnings. As a result, which of the following is true regarding the January financial statements?
Retained Earnings was overstated.
Inventories were understated.
Revenue was understated.
Profit was understated.
Accounts Receivable was overstated.
Part A: Company's accountant made adjusting entries at the end of the period for the following reasons:
- $1,702 of unpaid interest on a bank loan,
- $548 of wages that were earned by employees but not paid, and
- $1,680 of insurance that expired.
Part B: X Company, a merchandiser, purchased inventory on account. The accountant incorrectly recorded the transaction as an increase in Inventories and a decrease in Retained Earnings. As a result, which of the following is true regarding the January financial statements?
Retained Earnings was overstated.
Inventories were understated.
Revenue was understated.
Profit was understated.
Accounts Receivable was overstated.
Part B: X Company, a merchandiser, purchased inventory on account. The accountant incorrectly recorded the transaction as an increase in Inventories and a decrease in Retained Earnings. As a result, which of the following is true regarding the January financial statements?
Explanation / Answer
Part A : Unpaid Interest on a Bank Loan decreases equity (retained earnings) - $ 1,702 Wages Earned by Employees but not paid also decreases equity (retained earnings) - $ 548 Insurance which expired increases equity (retained earnings) $ 1,680 Total Equities Decreased by 570 $ Part B : Owing to incorrectly accounting the purchase of inventory on account as a reduction in Retained Earnings, the profit of X Company was understated.