Part A:

X Company prepares monthly financial statements. The balance in Unearned (Deferred) Revenue on October 1 is $1,064. As of October 31, $350 of the $1,064 had been earned, but the accountant failed to record the appropriate adjusting entry. What was the effect on the October 31 Balance Sheet? A.Total liabilities would be overstated by $714. B.Total liabilities would be understated by $714. C.Total liabilities would be overstated by $350. D.Retained Earnings would be understated by $714. E.Total assets would be understated by $350. F.Retained Earnings would be overstated by $350.

Part B:

In January, X Company, a merchandiser, purchased inventory on account. The accountant incorrectly recorded the transaction as an increase in Inventories and a decrease in Retained Earnings. As a result, which of the following is true regarding the January financial statements? A.Retained Earnings was overstated. B.Inventories were understated. C.Revenue was understated. D.Profit was understated. E.Accounts Receivable was overstated. F.Accounts Payable was overstated.