www.abzwater.com TM

ACCOUNTING


Question:


Abzwater.com received a USD 400 cash payment in advance of services being performed: USD 300 for January and USD 100 for February. The unadjusted trial balance shows USD 400 in the unearned repair revenue account. However, at January 31, USD 300 of the USD 400 unearned amount has been earned. Therefore, USD 300 must be transferred from unearned repair revenue into repair revenue. Which of the following statements is correct if the financial statements are prepared on January 31.

If the adjustment was not recorded, revenue would be overstated by USD 300 on the income statement

If the adjustment was not recorded, unearned repair revenue would be overstated by USD 300 causing liabilities on the balance sheet to be overstated

If the adjustment was not recorded, equity would be overstated by USD 300 on the income statement

If the adjustment was not recorded, unearned revenue would be overstated by USD 100 on the income statement