Question 3.8: Effect of Omitting Adjustments For the year ending December ......

Financial Accounting [EXP-43430]

Effect of Omitting Adjustments

For the year ending December 31, 2012, Mann Medical Co. mistakenly omitted adjusting entries for (1) $8,600 of unearned revenue that was earned, (2) earned revenue that was not billed of $12,500, and (3) accrued wages of $2,900. Indicate the combined effect of the errors on (a) revenues, (b) expenses, and (c) net income for the year ended December 31, 2012.

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a. Revenues were understated by $ 21,100 ($ 8,600 + $ 12,500).

b. Expenses were understated by $ 2,900.

c. Net income was understated by $ 18,200 ($ 8,600 + $ 12,500 – $2,900).

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