# For each of the following situations, indicate whether assets, liabilities, equity, revenues, and expenses are overstated (too high), understated (too

## Question:

For each of the following situations, indicate whether assets, liabilities, equity, revenues, and expenses are overstated (too high), understated (too low), or unaffected by the error in the June 30, 2016 financial statements. Briefly explain why the effects occur and state any assumptions you make.

a. On January 3, 2016, a company purchased a new delivery truck for \$35,000. The company estimates that the truck will be used for five years. No adjusting entry was made at year-end.

b. On June 15, 2016, a sports fan purchased season tickets for her city's hockey team's games for \$6,000 cash. The hockey season begins in October and the team recognizes its revenue when the hockey games are played. The bookkeeper credited revenue for \$6,000 when the cash was received.

c. On June 30, 2016, no entry was made to reflect water use during June. The water bill won't be received until late August. In June 2015, the company used \$5,000 worth of water and the manager estimates that about the same amount of water was used this year.

d. On September 1, 2015, a company borrowed \$1,000,000 from a private lender. The interest rate on the loan is six percent per year. Interest must be paid on August 31 and February 28 of each year. The loan principal must be paid in full on August 31, 2020. No adjusting entry was made by the borrower for the loan and interest on June 30, 2016.

e. On April 17, 2016, a \$7,970 cash expenditure for land was recorded as \$9,770.

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Question Posted: February 26, 2015 10:28:33