The Accountant of Isabella Consulting Company Failed to Make an Adjusting

question 145

Multiple Choice

The accountant of Isabella Consulting Company failed to make an adjusting entry to record $6,000 for unearned service revenues that were earned before the end of the fiscal year. Assume the company initially recorded a liability. 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.

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Definitions:

Variable Expenses

Variable expenses fluctuate in direct proportion to changes in activity level or volume, such as sales or production quantities.

Fixed Expenses

Expenses that do not change with the level of production or sales within a certain range and period, such as rent, salaries, and insurance.

Break-Even Sales

The amount of sales revenue needed to cover all fixed and variable costs, resulting in no profit or loss.

Variable Production Costs

Costs that fluctuate directly with the level of output, including materials, labor, and other expenses that vary with production volume.