Leslie Ltd Has Found an Error in Its Revenue Account

question 7

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 2015?

• A) It is $1200 too high.
• B) It is $1800 too high.
• C) It is $3000 too high.
• D) There is no effect.

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present values in various financial models.

Net Present Value

A calculation that evaluates an investment's profitability by discounting expected future cash flows to their present value and subtracting the initial investment.

Cash Inflows

Funds received by a business from its operational activities, investments, or financing, contributing to its cash pool.

Time Value of Money

The belief that possessing money in the present is worth more than holding the same amount later on because it has the potential to increase in value.