The following accounting errors occurred in 20x3,but were not discovered until 20x4: The combined effect of these three errors caused 20x3 pre-tax income to be:

Question

The following accounting errors occurred in 20x3,but were not discovered until 20x4:  The combined effect of these three errors caused 20x3 pre-tax income to be:

Quizplus · Accepted Answer

The effect of the errors on pre-tax income can be calculated as follows:
- Error 1: Overstated revenue by $500, which increases pre-tax income by $500.
- Error 2: Overstated expenses by $1,000, which decreases pre-tax income by $1,000.
- Error 3: Overstated depreciation expense by $700, which decreases pre-tax income by $700.

Net effect on pre-tax income = $500 - $1,000 - $700 = -$1,200
This means that pre-tax income was understated by $1,200, so the answer is option C.

The Following Accounting Errors Occurred in 20x3,but Were Not Discovered