Adjusting Assets for Unrecorded Errors

Steps:

• Subtract $5,000 for unrecorded increase in provision for doubtful debts, a contra-asset reducing net receivables.
• Reduce inventory by $20,000 to correct overvaluation, directly lowering current assets.
• Deduct $10,000 for unrecorded depreciation, increasing accumulated depreciation and decreasing non-current assets.
• Calculate corrected total: $1,000,000 -$5,000 - $20,000 -$10,000 = $965,000.

Why A is correct:

• A reflects the net decrease of $35,000 from all errors, aligning with accounting principles that provisions, inventory, and depreciation reduce asset values.

Why the others are wrong:

• B ignores the $20,000 inventory overvaluation, understating the adjustment.
• C adds unrecorded items as increases, misunderstanding their contra-asset nature.
• D overstates by treating errors as asset additions, contrary to standard adjustments.

Final answer: A