Errors in Financial Statements At the end of the current year, Jodi Corporation\

Question

Errors in Financial Statements At the end of the current year, Jodi Corporation's controller discovers the following items of information: 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. 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. Examining the Rent Expense account, the controller finds that it includes a $4,800 advance payment for 3 months' rent. The payment was mac on November 1 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. 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) Enter all amounts as positive numbers. 1. Liabilities understatedby $16,000 , net income and shareholders' equity overstatedby$16,000V . 2. Liabilities understated by 2400 X, net income and shareholders equity overstated _by by s1,600 s 3,000 3. Assets understatedby s 1,600, net income and shareholders' equity understated Assets overstated by s 3,00 net income and shareholders' eaulty overstated by 5. Liabilities overstated by 13,000 ,net income and shareholders' equity understated by $13,000V

Explanation / Answer

2 Interest payable = 20000*12%/12*3=600 Liabilities understated by $600 Net income and stockholders' equity overstated by $600

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