Question

Home Team Corporation recently hired Steve Willits as its bookkeeper. Mr. Willits is somewhat inexperienced and has made numerous errors recording daily business transactions. Indicate the effects of the errors described as follows on each of the financial statement elements shown in the column headings. Use the following symbols: O for overstated, U for understated, and NE for no effect. Answer is complete but not entirely correct. Error Owners' Equity NE XU X NE Recorded the issuance of capital stock by debiting Capital Stock and crediting Cash. Recorded the declaration and payment of a dividend by debiting Interest Expense and crediting Cash. Recorded the payment of an account payable by debiting Cash and crediting Service Revenue. Recorded the collection of an outstanding account receivable by debiting Cash and crediting Accounts Payable. Recorded client billings on account by debiting Service Revenue and crediting Cash. Recorded the cash purchase of land by debiting Cash and crediting Land. Recorded the purchase of a building on account by debiting Rent Expense and crediting Capital Stock. Net Income Total Assets Total Liabilities NE oo NE U U NE NE U U NE oo ONE NE U U NE O NE NE oo oo NE NE NE • NE

Please fix my answers

Answer 1

1) Capital account is to be credited and cash account is to be debited , which will increase both the owner equity as well as total assets . Therefore Capital and cash both are Understated U

2) As payment of dividend is correctly credited to cash account hence there will be no effect in total assets , therefore it will NE

3)As cash is to be paid and should be credited , it has been debited which will increase the cash , therefore Cash has been overstated (O) . There should be no effect require to be given in revenue, but as revenue is credited it hence Net income has been overstated (O) .As liability has been paid off it should have been reduced but no effect has been given therefore Total liability is overstated (O), and as net income has been overstated it will directly affect Owner equity hence it is also Overstated (O).

4) As accounts payable has been credited which should be done , it has been overstated as there will be no effect on liability part , therefore it should be overstated (O)

5) As the journal entry passed is not correct, it has reduced the net income by debiting it and reduced the cash too by crediting it , therefore Net income is Understated (U) , There will be no effect on Liability part hence it should be (NE) , and as net income is understated it will directly affect owner equity hence it is also understated (U).

6) In this only wrong accounts have been debited and credited , both the accounts are of assets side only and hence there will be no effect on total assets (NE).

7) As there will be no effect on income side because of debit of rent expense , net income has been understated (U), As purchase of building has not been debited and instead capital stock has been credited , total assets has been understated (U) , As purchase has been made on account which means it has not been made on cash thus a creditor for purchase of capital assets has to be created , thus it is understated (U)