Question

The accountant for Mystique Company, a medical services consulting firm, mistakenly omitted adjusting entries for (a) unearned revenue earned during the year , $21,950; and (b) accrued wages, $6,100.

a.

Indicate the effect of each error, considered individually, on the income statement for the current

year ended July 31.  Also indicate the effect of each error on the July 31, balance sheet.  Set up

a table similar to the following and record your answers by inserting the dollar amount in the

appropriate spaces.  Insert a zero if the error does not affect the item.

						Error (a)				Error (b)
						Over-stated		Under-stated		Over-stated		Under-stated
1	Revenue for the year would be					$		$		$		$
2	Expenses for the year would be					$		$		$		$
3	Ne income for the year would be					$		$		$		$
4	Assets at July 31 would be					$		$		$		$
5	liabilities at July 31 would be					$		$		$		$
6	Owner's equity at July 31 would be					$		$		$		$
b.	If the net income for the current year had been $24,300, what would have been the correct net
	income if the proper adjusting entries had been made?

Answer 1

(a)		Error (a)		Error (b)
		Over-stated	Under-stated	Over-stated	Under-stated
1	Revenue for the year would be	-	$21,950	-	-
2	Expenses for the year would be	-	-	-	$6,100
3	Net income for the year would be	-	$21,950	$6,100	-
4	Assets at July 31 would be	-	-	-	-
5	Liabilities at July 31 would be	$21,950	-	-	$6,100
6	Owner's equity at July 31 would be	-	$21,950	$6,100	-
(b)
	Net Income	$24,300
	Add: unearned revenue earned	$21,950
	Less: accrued wages	$6,100
	Correct net income	$40,150