On December 31,2012,the Adjusting Entry for Depreciation Was Made Incorrectly

question 74

Multiple Choice

On December 31,2012,the adjusting entry for depreciation was made incorrectly.The following is the entry which was made erroneously: $$\begin{array} { | l | r | r | } \hline \text { Depreciation expense } & 1,500 & \\\hline \text { Accumulated depreciation } & & 1,500 \\\hline\end{array}$$ The correct amount of depreciation should have been $5,100.Consider the effects of this error on the balance sheet,and identify which of the following statements is TRUE.

• A) Total liabilities are overstated by $3,600.
• B) Total liabilities are understated by $3,600.
• C) Total assets are overstated by $3,600.
• D) Total assets are understated by $3,600.

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Definitions:

Break-Even Point

The point at which total costs and total revenue are equal, leading to neither profit nor loss.

Sales Mix

Sales mix refers to the proportion of different products or services that a company sells, significantly impacting its overall profitability.

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted, indicating how much revenue contributes to fixed costs and profits.

Fixed Costs

Costs that remain constant in total regardless of changes in the level of activity or volume of production, such as rent, salaries, and insurance.