BuyFindarrow_forward

Intermediate Accounting: Reporting...

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

Solutions

Chapter
Section
BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
68 views

Effects of Errors: During the current accounting period. Page Company makes the following errors. The company uses a perpetual inventory system.

Chapter 3, Problem 7P, Effects of Errors: During the current accounting period. Page Company makes the following errors.

Required:

Indicate the effect of each error on the net income, total assets, total liabilities, and total shareholders’ equity at the end of the accounting period by using the following code: O = overstated, U = understated, N = no effect. Disregard income taxes.

To determine

Indicate the effect of each error on the net income, total assets, total liabilities, and total shareholder’s equity at the end of the accounting period.

Explanation

Errors: An error is a mistake committed in the process of book-keeping or in accounting.  In some cases, errors may be committed but, they will not affect the totals of the trial balance. Such error can be detected while preparing the trial balance or would be indicated by the unusual account balance.

Indicate the effect of each error on the net income, total assets, total liabilities, and total shareholder’s equity at the end of the accounting period as follows:

Serial numberError

Net

income

Total assetsTotal liabilities

Total shareholder’s

equity

1.The purchase of equipment for cash is recorded as a debit to equipment and a credit to accounts payable.NOON
2.Failed to record the purchase of inventory on credit.NUUN
3.Cash received from a customer in payment of its account is recorded as if the receipt were for a current period sale.OONO
4.Failed to record a credit sale.UUNU
5.At the end of the year, the receipt of money from a 60-day, 12% bank loan is recorded as a debit to cash and a credit to sales revenue.ONUO
6.Failed to record the depreciation at the end of the current period.OONO

Table (1)

1. The purchase of equipment for cash is recorded as a debit to equipment and a credit to accounts payable:  In this case, the amount of equipment is wrongly credited in the accounts payable account instead of cash account, and it increases the value of total assets and liabilities. There is no affect in the net income and total shareholder’s equity as this error affects only assets and liabilities account.

2. Failed to record the purchase of inventory on credit: In this case, inventory purchased on credit is not recorded in the inventory and accounts payable account...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What is changed data capture?

Accounting Information Systems

Give three examples of important trade-offs that you face in your life.

Principles of Microeconomics (MindTap Course List)

Why cant the Fed control the money supply perfectly?

Brief Principles of Macroeconomics (MindTap Course List)

If a companys beta were to double, would its required return also double?

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is a joint cost? How does it relate to by-products?

Cornerstones of Cost Management (Cornerstones Series)