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

question 76

Multiple Choice

On December 31, 2012, the adjusting entry for depreciation was made incorrectly. The following is the entry which was made erroneously: 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:

Cash Surrender Value

The amount that the insurer has agreed to pay to the insured if a life insurance policy is canceled before the insured’s death.

Term Insurance

A type of life insurance policy for which premiums are paid for a specified term and payment is made by the insurer only if the insured dies within the term period.

Cancel Policy

A cancel policy refers to the terms under which an agreement, insurance policy, or service contract can be terminated before its natural expiration date.

Advance Written-notice

A notification given in writing ahead of time, often a requirement in legal and contractual situations.