Answer:
1. Balance sheet- understatement to current liability by $1,400 (accrued supplies)
Income statement - overstatement of income by $1,400
2. Balance sheet - understate current liability (unearned revenue) by $82,000
Income statement - overstatement to revenue by $82,000 which also overstates income by same amount
3. Balance sheet - understatement of current asset (interest receivable) by $7,200
Income statement - Understated revenue by $7,200 which will result to understated income by same amount
Explanation:
•Income statement is affected by all transaction with nominal accounts and balance sheet affects all transaction with real accounts.
•Failure to recognize Wolfe-Bache’s accrued supplies expense resulted to understated expense which in turns overstates income by $1,400. In relation to that is an understatement to current liability (accrued supplies expense) by $1,400. Missed entry below:
Dr supplies expense $1,400 (nominal account)
Cr Accrued supplies expense $1,400 (real account)
•Midwest mistake of recognition unearned rent as rent revenue will result to an overstatement of revenue by $82,000 and understatement of current liability (unearned rent income) by $82,000. Adjustment entry below:
Dr Rent revenue $82,000
Cr Unearned rent revenue $82,000
•Dinkins-Lowery’s failure to recognize accrued interest will result to understatement to revenue by $7,200 and understatement to current asset (interest receivable) by $7,200. Entry is Debit interest receivable $7,200 and credit interest revenue $7,200.
