Effects of Errors on Financial Statements
The accountant for Astaire Medical Co., a medical services consulting firm, mistakenly omitted adjusting entries for (a) unearned revenue earned during the year ($25740) and (b) accrued wages ($4,780).
Indicate the effect of each error, considered individually, on the income statement for the current year ended August 31. Also indicate the effect of each error on the August 31 balance sheet.
Enter all amounts as positive numbers. Enter “0” in those spaces where there is no overstatement or no understatement.
Error (a)
:Adjusting entry : unearned revenue earned during the year ($25740) was omitted
1.
Revenue for year would be
Overstated $0
Understated $25740
2.
Expenses for year would be
Overstated $0
Understated $0
3.
Net income for year would be
Overstated $0
Understated $25740
4.
Assets at on August 31 would be
Overstated $0
Understated $0
5.
Liabilities at August 31 would be
Overstated $25740
Understated $0
6.
Stockholders’ equity at August 31 would be
Overstated $0
Understated $25740
Error (b)
Adjusting entry for accrued wages ($4,780) was omitted.
1.
Revenue for year would be
Overstated $0
Understated $0
2. Expenses for year would be
Overstated $0
Understated $4,780
3.
Net income for year would be
Overstated $4,780
Understated $0
4.
Assets at on August 31 would be
Overstated $0
Understated $0
5.
Liabilities at August 31 would be
Overstated $0
Understated $4,780
6.
Stockholders’ equity on August 31 would be
Overstated $4,780
Understated $0
