Question

The accountant for Healthy Life Company, a medical services consulting firm, mistakenly omitted adjusting entries for (a) unearned revenue earned during the year ($28,200) and (b) accrued wages ($4,820). Indicate the effect of each error, considered individually, on the income statement for the current year ended July 31. Also indicate the effect of each error on the July 31 balance sheet. Enter all amounts as positive numbers. Enter "O" in those spaces where there is no overstatement or no understatement. Error (a) The adjusting entry for unearned revenue earned during the year ($28,200) was omitted. Overstated Understated 1. Revenue for the year would be 2. Expenses for the year would be 3. Net income for the year would be 4. Assets at July 31 would be 5. Liabilities at July 31 would be 6. Stockholders' equity at July 31 would be Error (b) The adjusting entry for accrued wages ($4,820) was omitted. Overstated Understated 1. Revenue for the year would be 2. Expenses for the year would be 3. Net income for the year would be 4. Assets at July 31 would be 5. Liabilities at July 31 would be 6. Stockholders' equity at July 31 would be

Answer 1

Error a)

		Overstated	Understated
1	Revenues for the year would be	0	$28,200
2	Expenses for the year would be	0	0
3	Net income for the year would be	0	$28,200
4	Assets at July 31 would be	0	0
5	Liabilities at July 31 would be	$28,200	0
6	Stockholders' equity at July 31 would be	0	$28,200

Error b)

		Overstated	Understated
1	Revenues for the year would be	0	0
2	Expenses for the year would be	0	$4,820
3	Net income for the year would be	$4,820	0
4	Assets at July 31 would be	0	0
5	Liabilities at July 31 would be	0	$4,820
6	Stockholders' equity at July 31 would be	$4,820	0

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