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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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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 ...

Solution Summary

The solution clearly explains the effects of the errors and what the entries should have been.

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See attached file for full problem description.

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