In early 2010, while reviewing Huffman Inc.’s 2009 financial records, the accountant discovered several errors. For each of the following errors, indicate the effect on net income (i.e., understatement, overstatement, or no effect) for both 2009 and 2010, assuming that no correction had been made and the company uses a periodic system for inventory.
(a) Certain items of ending inventory were accidentally not counted at the end of
2009.
(b) Machinery was sold in May 2009, but the company continued to deduct depreciation for the remainder of 2009, although the asset was removed from the books in May.
(c) The 2009 year-end purchases of inventory were not recorded until the beginning of 2010, although the inventory was correctly counted at the end of 2009.
(d) Goods sold on account in 2009 were not recorded as sales until 2010.
(e) Insurance costs incurred but unpaid in 2009 were not recorded until paid in 2010.
(f) Interest revenue in 2009 was not recorded until 2010.
(g) The 2009 year-end purchases were not recorded until the beginning of 2010.
The inventory associated with these purchases was omitted from the ending inventory count in 2009.
(h) A check for January 2010 rent was received and recorded as revenue at the end of 2009.
(i) Interest accrued in 2009 on a note payable was not recorded until it was paid in 2010.