Question 5 Show how the following independent errors will affect net income on t

Question

Question 5

Show how the following independent errors will affect net income on the Income Statement and the stockholders' equity section of the Balance Sheet using the symbol + (plus) for overstated, - (minus) for understated, and 0 (zero) for no effect. Ending inventory in 2014 overstated. Failed to accrue 2014 interest revenue. A capital expenditure for factory equipment (useful life, 5 years) was erroneously charged to Maintenance Expense in 2014. Failed to count office supplies on hand at 12/31/14. Cash expenditures have been charged to Supplies Expense during the year 2014. Failed to accrue 2014 wages. Ending inventory in 2014 understated. Overstated 2014 depreciation expense; 2015 expense correct.

Explanation / Answer

2014 2015 Particulars Income Statement   Balance Sheet Income Statement   Balance Sheet 1) Ending Inventory Overstated + + - - 2) Failed toaccrue intt rev - - 3) Cap Exp - - + + 4)Failed to count office supplies - - 5) Failed to accrue wages + + 6) Ending inv Understated - - + + 7) Overstaed dep exp - - + +

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