On December 31, 2015, Wolfe-Bache Corporation failed to accrue office supplies e

Question

   

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:

     

    

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.

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.

   

What would be the effect of each error on the income statement and the balance sheet in the 2015 financial statements?

     

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.)

     

Below are three independent and unrelated errors.

Explanation / Answer

Answer:

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

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

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