Analyzing the Effects of Errors on Financial Statement Items
Cohen & Boyd, Inc., publishers of movie and song trivia books, made the following errors in adjusting the accounts at year-end (December 31):
a. Did not accrue $1,400 owed to the company by another company renting part of the building as a storage facility.
b. Did not record $15,000 depreciation on the equipment costing $115,000.
c. Failed to adjust the Unearned Fee Revenue account to reflect that $1,500 was earned by the end of the year.
d. Recorded a full year of accrued interest expense on a $17,000, 9 percent note payable that has been outstanding only since November 1.
e. Failed to adjust Prepaid Insurance to reflect that $650 of insurance coverage has been used.
Required:
1. For each error, prepare the adjusting journal entry (a) that was made, if any, and (b) that should have been made at year-end.
2. Using the following headings, indicate the effect of each error and the amount of the effect (that is, the difference between the entry that was or was not made and the entry that should have been made). Use O if the effect overstates the item, U if the effect understates the item, and NE if there is no effect. (Reminder: Assets = Liabilities + Stockholders’ Equity; Revenues − Expenses = Net Income; and Net Income accounts are closed to Retained Earnings, a part of Stockholders’Equity.)
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December 12, 2011

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