1. ______ The failure to adjust an unearned revenue that has been partially earn

Question

1. ______ The failure to adjust an unearned revenue that has been partially earned and was originally recorded as a credit to Unearned Revenue will usually result in an
a. Overstatement of revenues and an overstatement of liabilities
b. Overstatement of revenues and an understatement of liabilities
c. Understatement of revenues and an understatement of liabilities
d. Understatement of revenues and an overstatement of liabilities

--> The following are a selection of account balances taken from the Adjusted Trial
Balance of Cajon Corporation for December 31, 2009:

                                                     Debit     Credit
Cash                                           $150
Store Supplies                               300
Service Fees Revenue                                 $600
Common Stock                                              20
Retained Earnings                                         30
Accounts Payable                                        70
Dividends                                      200
Unearned Service Fees Revenue                   180
Wage Expense                               200
Store Supplies Expense                   50
2. ______ From the information given, Cajon Corporation had net income in 2009 of a. $150
b. $530 c. $330 d. $350 3. ______ Refer to Cajon Corporation, Cajon Corporation had liabilities as of December 31, 2009 of a. $180
b. $280 c. $250 d. $70
4. ______ Refer to Cajon Corporation, after all closing entries have been made, the balance in Cajon's Retained Earnings account would be
a. $360 b. $380 c. $310 d. $180 e. $30

Store Supplies Expense                   50
2. ______ From the information given, Cajon Corporation had net income in 2009 of a. $150
b. $530 c. $330 d. $350 3. ______ Refer to Cajon Corporation, Cajon Corporation had liabilities as of December 31, 2009 of a. $180
b. $280 c. $250 d. $70
4. ______ Refer to Cajon Corporation, after all closing entries have been made, the balance in Cajon's Retained Earnings account would be
a. $360 b. $380 c. $310 d. $180 e. $30

Explanation / Answer

1 The failure to adjust an unearned revenue that has been partially earned and was originally recorded as a credit to unearned Revenue will usually result in an : d. Understatement of revenues and an overstatement of liabilities ( However, the retained earnings will be understated by an equal amount ,hence the total of liabilities and stock holders' equity will remain unaffected .) 2 Net Income = 600 - ( 200 + 50 ) = 350 3 The Liabilities : Accounts Payable - 70 Unearned Service Revenue - 180 Total - 250 4 The Balance in Retained Earnings would be :350 + 30 -200 = $180

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