On December 31, 2016, the Maggie Company recognized $15,000 in revenue from rent of $5,000 due in 2017 and $10,000 due in 2018, all collected in advance from another company. Ignoring income taxes, if this error is not detected
A) Retained Earnings at December 31, 2017, will be overstated by $10,000.
B) Retained Earnings at December 31, 2017, will be understated by $10,000.
C) Retained Earnings will be overstated by $15,000 until the error is discovered.
D) Retained Earnings at December 31, 2017, will be understated by $15,000.

Question

Quizplus · Accepted Answer

Retained Earnings at December 31, 2017, will be overstated by $10,000 because the $5,000 for 2017 would correctly be recognized as revenue in 2017, but the $10,000 for 2018 should not be recognized until 2018, thus overstating 2017 earnings.

On December 31, 2016, the Maggie Company Recognized $15,000 in Revenue