Which of the Following Errors Would Most Likely Lead to an Overstatement

question 10

Multiple Choice

Which of the following errors would most likely lead to an overstatement of income?

• A)Recording revenue next period when the cash is collected although it is earned in the current year
• B)Recording an expense incurred this year when the cash is paid next year
• C)Failure to adjust deferred rent revenue account for the portion of rent earned this year
• D)Failure to adjust prepaid expenses account for the portion of insurance expired this year

---

Definitions:

Consolidated Statements

Financial statements that present the assets, liabilities, equity, income, expenses, and cash flows of a parent company and its subsidiaries as a single entity.

Retrospectively

Relating to the application of changes or the analysis of past events or periods in a manner that considers previous conditions or policies as if they were still in effect.

Individual Companies

Refers to separate, distinct legal business entities, as opposed to conglomerates or groups of companies under common ownership or control.

Retrospective Application Method

An accounting method that applies a new policy or correction as if it had always been in effect, adjusting past financial statements accordingly.