Seldon Industries amortizes its copyright of $65,000 over 40 years.Ms.Alice,the bookkeeper,mistakenly recorded the amortization twice in the current year.The effect of this mistake causes:
A)assets to be understated.
B)cash to be overstated.
C)retained earnings to be overstated.
D)liabilities to be understated.

Question

Quizplus · Accepted Answer

Amortization is recorded with a debit to Amortization Expense (to increase that expense account)and a credit to Accumulated Amortization (to increase that contra-asset account).If the entry is recorded twice,total assets will be understated and expenses will be overstated.The overstatement of expenses will cause net income to be understated and,as a result,stockholders' equity will also be understated.

Seldon Industries Amortizes Its Copyright of $65,000 Over 40 Years