Leslie Ltd Has Found an Error in Its Revenue Account

question 28

Multiple Choice

Leslie Ltd has found an error in its revenue account: an invoice for $3000 was recorded as revenue in 2015 when it should have been recorded in 2016.The company's income tax rate is 40 per cent and there was no corresponding error in cost of goods sold
-Assuming that the dividend is unchanged,what is the effect of the error on retained profits at end of 2016?

• A) It is $1800 too low.
• B) It is $3000 too low.
• C) It is $1800 too high.
• D) There is no effect.

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Definitions:

Automatic Market Adjustments

The self-regulating nature of the marketplace that responds to supply and demand changes to reach equilibrium without outside intervention.

Long-run Equilibrium

A state in which, given enough time for all adjustments to be made, there is no incentive for firms to enter or exit an industry, and prices stabilize.

Marginal Revenue

The extra income a business earns by selling an additional unit of a product or service.

Marginal Cost

The elevated cost associated with manufacturing an additional unit of a product or service.