Question 3:

Show how the following independent errors will affect net income on the Income Statement and the stockholders' equity section of the Balance Sheet using the symbol + (plus) for overstated, (minus) for understated, and 0 (zero) for no effect.

2020 2021

Income Balance Income Balance

Statement Sheet Statement Sheet

1. Ending inventory in 2020 overstated.

2. Failed to accrue 2020 interest revenue.

3. A capital expenditure for factory equipment (useful life, 5 years) was erroneously charged to Maintenance Expense in 2020.

4. Failed to count office supplies on hand at 12/31/20. Cash expenditures have been charged to Supplies Expense during the year 2020.

5. Failed to accrue 2020 wages.

6. Ending inventory in 2020 understated.

7. Overstated 2020 depreciation expense; 2021 expense correct.