Leah Co. reported $7,000 of net income for 2014. The following errors were then discovered:
Ending 2013 accrued expense was understated by $800.
Ending 2014 unearned revenue was overstated by $75.
Ending 2013 unearned revenue was overstated by $380.
Ignoring income taxes, compute correct 2014 net income.
A) $6,505
B) $5,895
C) $7,495
D) $6,655

Question

Leah Co. reported $7,000 of net income for 2014. The following errors were then discovered: 
Ending 2013 accrued expense was understated by $800.
Ending 2014 unearned revenue was overstated by $75.
Ending 2013 unearned revenue was overstated by $380.
 Ignoring income taxes, compute correct 2014 net income.
A) $6,505
B) $5,895
C) $7,495
D) $6,655

Quizplus · Accepted Answer

The 2013 accrued expense understatement of $800 would have decreased 2013 expenses, thus overstating 2013 income and not affecting 2014 income. The 2014 unearned revenue overstatement of $75 would decrease 2014 revenue, thus decreasing 2014 income. The 2013 unearned revenue overstatement of $380 would have decreased 2013 revenue, thus understating 2013 income and not affecting 2014 income. Therefore, the correct 2014 net income is $7,000 + $75 = $7,075.

Leah Co Reported $7,000 of Net Income for 2014