Question

Accrued salaries payable of $10,000 were not recorded at December 31, 2018 and expensed in 2019.. Office supplies on hand of $9,000 at December 31, 2019 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause

Select one:

a. 2019 net income to be understated $19,000 and December 31, 2019 retained earnings to be understated $9,000.

b. 2019 net income and December 31, 2019 retained earnings to be understated $19,000 each.

c. 2018 net income to be overstated $10,000 and 2019 net income to be understated $9,000.

d. 2018 net income and December 31, 2018 retained earnings to be understated $10,000 each.

Answer 1

$19000 (10000+9000) of expenses were overstated in 2019, as a result 2019 net income would be understated by $19,000

Retained earnings at December 31, 2019 would be understated by error amount of $9000 for Office supplies expense.

Salaries expense error would not affect Retained earnings as the amount would have the same affect on Retained Earnings had it been recorded in 2018.

2019 net income to be understated $19,000 and December 31, 2019 retained earnings to be understated $9,000.

Option A is correct