Overstated rent receivable from misapplying 10% increase

Steps:

• Record $1000 rent in advance received on 1 Jan 2022 as a liability, to be earned in 2022.
• Apply 10% rent increase to base rent, adding $100 to 2022 income ($1000 × 10%).
• Treat $3000 receipt as covering year-end period; recognize only 2022 portion as income, rest as liability.
• Error in including $1300 as rent receivable overstates accrued income by$100 vs. correct $1200 after increase.

Why A is correct:

• Under accrual basis, rent receivable directly increases profit; $100 over-inclusion overstates 2022 profit by$100.

Why the others are wrong:

• B: Profit is overstated, not understated, by the erroneous inclusion.
• C: Overstatement is $100 from increase misapplication, not full$1000 advance.
• D: Profit is overstated, not understated, and amount is $100, not$1000.

Final answer: A