The following errors were discovered during January 20x3 (prior to any reversing entries): The accounting period ends December 31.What effect would these errors have on 20x3 pre-tax income?

Question

The following errors were discovered during January 20x3 (prior to any reversing entries):  The accounting period ends December 31.What effect would these errors have on 20x3 pre-tax income?

Quizplus · Accepted Answer

Since the accounting period ends on December 31, any errors discovered in January 20x3 would affect the prior year's financial statements (in this case, 20x2). The error is not specified, but we know that it resulted in an imbalance of $2,000 (either overstated or understated). Since this error was not discovered until after the financial statements were prepared, it was not corrected with reversing entries. Therefore, it would continue to affect the beginning balances of 20x3. The effect on pre-tax income for 20x3 is not specified, so we can assume it had no impact. Thus, the error would reduce 20x2 pre-tax income by $2,000, which means the correct choice is D (Understated by $1,000).

The Following Errors Were Discovered During January 20x3 (Prior to Any