The following income statement was prepared for Hughes Company for the year 2013:
Income Statement
For the Year Ended December 31, 2013
Sales ................ $75,000
Cost of goods sold .......... (41,250)
Gross margin ............ 33,750
Operating expenses ........... (10,120)
Net income .............. $23,630

During the year-end audit, the following errors were discovered:
1. An $1,800 payment for repairs was erroneously charged to the Cost of Goods Sold account. (Assume that the perpetual inventory system is used.)
2. Sales to customers for $3,400 at December 31, 2013, were not recorded in the books for 2013. Also, the $1,870 cost of goods sold was not recorded. The error was not discovered in the physical count because the goods had not been delivered to the customer.
3. A mathematical error was made in determining ending inventory. Ending inventory was understated by $1,700. (The Inventory account was written down in error to the Cost of Goods Sold account.)

Determine the effect, if any, of each of the errors on the following items. Give the dollar amount of the effect and whether it would overstate (O), understate (U), or not affect (NA) the account.

The effect on sales is recorded as anexample.

  • CreatedOctober 26, 2013
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