In: Accounting
Below are three independent and unrelated errors. |
a. |
On December 31, 2015, Wolfe-Bache Corporation failed to accrue office supplies expense of $1,300. In January 2016, when it received the bill from its supplier, Wolfe-Bache made the following entry: |
Office supplies expense | 1,300 | ||
Cash | 1,300 | ||
b. |
On the last day of 2015, Midwest Importers received a $80,000 prepayment from a tenant for 2016 rent of a building. Midwest recorded the receipt as rent revenue. |
c. |
At the end of 2015, Dinkins-Lowery Corporation failed to accrue interest of $7,000 on a note receivable. At the beginning of 2016, when the company received the cash, it was recorded as interest revenue. |
Required: |
For each error: |
1. |
What would be the effect of each error on the income statement and the balance sheet in the 2015 financial statements? |
2. |
Prepare any journal entries each company should record in 2016 to correct the errors. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
1
What would be the effect of each error on the income statement and the balance sheet in the 2015 financial statements
Error-A |
||
Income statement |
Expanses Understated |
Net income Overstated |
Balance sheet |
Liability Understated |
Retained earnings Overstated |
Error-B |
||
Income statement |
Revenue Overstated |
Net income Overstated |
Balance sheet |
Liability Understated |
Retained earnings Overstated |
Error-C |
||
Income statement |
Revenue Understated |
Net income Understated |
Balance sheet |
Assets Understated |
Retained earning Understated |
______________________________________
2
Prepare any journal entries each company should record in 2016 to correct the errors
Transaction |
General Journal |
Debit $ |
Credit $ |
a |
Retained earning |
1300 |
|
Office supplies Expanses |
1300 |
||
b |
Retained earning |
80,000 |
|
Rent revenue |
80000 |
||
c |
Interest revenue |
7000 |
|
Retained earning |
7000 |