PE 3-8B Effect of omitting adjustments

For the year ending June 30, 2012, Aspen Medical Services Co. mistakenly omitted adjusting
entries for (1) $2,100 of supplies that were used, (2) unearned revenue of $13,900 that
was earned, and (3) insurance of $12,000 that expired. Indicate the combined effect of the
errors on (a) revenues, (b) expenses, and (c) net income for the year ended June 30, 2012.

Answer:
a. Revenues were understated by $13,900.
b. Expenses were understated by $14,100 ($2,100 + $12,000).
c. Net income was overstated by $200 ($14,100 – $13,900).