For the year ending December 31, Orion, Inc. mistakenly omitted adjusting entries for $1,500 of supplies that were used, (2) unearned revenue of $4,200 that was earned, and (3) insurance of $5,000 that expired. For the year ending December 31, what is the effect of these errors on revenues, expenses, and net income?
A) revenues are overstated by $4,200
B) net income is overstated by $2,300
C) expenses are overstated by $6,500
D) expenses are understated by $3,500

Question

Quizplus · Accepted Answer

Revenues are understated by $4,200.
Expenses are understated by $6,500 (insurance of $5,000 and supplies of $1,500).
Effect on net income = $4,200 - $6,500 = -$2,300
Net income is overstated by $2,300.

For the Year Ending December 31, Orion, Inc