The Accountant for Sparks Electric Company Failed to Make an Adjusting

question 85

Multiple Choice

The accountant for Sparks Electric Company failed to make an adjusting entry to record $3,000 of telephone expenses for the last two months of the year. Which of the following statements is true?

• A)The total liabilities will be overstated.
• B)The total liabilities will be understated.
• C)The total assets will be overstated.
• D)The total assets will be understated.

Comprehend the differences between direct and indirect methods for reporting cash flows from operating activities.

Recognize the impact of accrual accounting on the measurement of earnings and cash flows.

Identify common adjustments made under the indirect method for cash flow reporting.

Distinguish between the requirements of International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP) regarding cash flow reporting.

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Definitions:

Sole Proprietorship

A business owned and operated by a single individual, where there is no legal distinction between the owner and the business entity.

Incorporated

A legal process whereby a business entity is formed as a distinct legal entity, separate from its owners, with its own rights and liabilities.

Principal

The main party to a transaction or contract who has a primary interest and authority in the context considered.

Agency Responsibilities

Duties and powers entrusted to an agent or agency acting on behalf of another person or entity, known as the principal.