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Assume that Sunshine Realty Co. borrowed $300,000 from Columbia First Rank and Trust. In recording the transaction, Sunshine erroneously recorded the receipt as a debit to Cash, $300,000, and a credit to Fees Earned, $300,000. (a) How would this error affect the equality of the trial balance? (b) How would this error affect the income statement, statement of owner’s equity, and balance sheet?

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Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

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Chapter
Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
Chapter 2, Problem 9DQ
Textbook Problem
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Assume that Sunshine Realty Co. borrowed $300,000 from Columbia First Rank and Trust. In recording the transaction, Sunshine erroneously recorded the receipt as a debit to Cash, $300,000, and a credit to Fees Earned, $300,000. (a) How would this error affect the equality of the trial balance? (b) How would this error affect the income statement, statement of owner’s equity, and balance sheet?

(a)

To determine

Errors not affecting trial balance:

An error is a mistake committed in the process of book-keeping or in accounting.  In some cases, errors may occur but, they will not affect the totals of the trial balance. Such an error can be found while preparing the trial balance or would be indicated by the unusual account balance. For Example, Crediting land account. If such errors have already been journalized, and posted to the ledger, then they should be corrected by preparing a correcting journal entry.

To identify: The manner in which the given error would affect the equality of the trial balance.

Explanation of Solution

As the overstatement of the owner’s equity account (fees earned) is offset by the ...

(b)

To determine

To discuss: The manner in which the error would affect the income statement, statement of owner’s equity, and the balance sheet.

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Chapter 2 Solutions

Accounting
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