Effect of Changes due to Accounting Errors
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Accrued salaries payable of $51,000 were not recorded at December 31, 2010. Office supplies on hand of $24,000 at December 31, 2011 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause
A- 2011 net income to be understated $75,000 and December 31, 2011 retained earnings to be understated $24,000.
B- 2011 net income and December 31, 2011 retained earnings to be understated $24,000 each.
C- 2010 net income and December 31, 2010 retained earnings to be understated $51,000 each.
D- 2010 net income to be overstated $27,000 and 2011 net income to be understated $24,000.
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Solution Summary
The solution clearly explains the effects of the errors and what the entries should have been.
Solution Preview
The effect of the errors is as follows:
Accrued salaries entry in 2010 should have been
Debit Salary expense $51,000
Credit Salaries payable $51,000
Supplies on hand entry in 2011 should have been
Debit Inventory of supplies ...
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