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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Errors in Financial Statements At the end of the current year, Jodi Corporation’s controller discovers the following items of information:

  1. 1. Salaries are paid every Friday for a 5-day work week. The normal weekly payroll is $40,000. The year-end falls on a Tuesday this year.
  2. 2. The company has a $20,000, 9-month, 12% (annual rate) note payable outstanding at the end of the year. The note was issued on October 1; the interest is due when the note is paid.
  3. 3. Examining the Rent Expense account, the controller finds that it includes a $4,800 advance payment for 3 months’ rent. The payment was nude on November 1.
  4. 4. The storeroom contains $500 of office supplies. At the beginning of the year, there were no office supplies. During a year, the company purchased $3,500 of office supplies which were debited to the Office Supplies account.
  5. 5. The company received a large order in May with a $13,000 advance payment. The advance payment was credited to Unearned Revenue. In November, the order was delivered to the customer.

Required:

For each of the preceding items, indicate the effect on net income, assets, liabilities, and shareholders’ equity in the financial statements of the company for the year if the controller fails to make an adjusting entry for the item (ignore income taxes). (Contributed by Paula L. Koch)

To determine

Indicate the effect of given transactions on net income, assets, liabilities, and shareholders’ equity in the financial statements of the company for the year if the controller fails to make an adjusting entry for the item.

Explanation

Assets: These are the resources owned and controlled by business and used to produce benefits for the company. Assets are classified on the balance sheet as current assets, non-current assets, property, plant, and equipment, and intangible assets.

Liabilities: The claims creditors have over assets or resources of a company are referred to as liabilities. These are the debt obligations owed by company to creditors. Liabilities are classified on the balance sheet as current liabilities and long-term liabilities.

Shareholders’ Equity: Shareholders Equity refers to the right of the owner to possess over the resources of the business. Common stock and the retained earnings are the components of the Shareholders Equity...

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