Identify the impact on the balance sheet if the following information is not used to adjust the accounts:
Plant and equipment are depreciated at the rate of $1,200 per month.
a. Assets overstated and Stockholders’ Equity understated by $1,200.
b. Assets overstated and Stockholders’ Equity overstated by $1,200.
c. Assets understated and Stockholders’ Equity overstated by $1,200.
d. None of these answers are correct.
e. Assets understated and Stockholders’ Equity understated by $1,200
nswer : b. Assets overstated and Stockholders’ Equity overstated by $1,200.
Explanation : If adjusting entry is not made, expenses will be understated and profit will be overstated by $1200 in that year income statement And profit impact will be on equity so ultimately equity will increase.depriciation entry not made then assets will be overstated.So both assets and owner’s equity will be overstated by $1200 on that year statement of financial position.
