Question

In the course of routine checking of all journal entries prior to preparing year-end reports, Betty Eller discovered several strange entries. She recalled that the president’s son Joe had come in to help out during an especially busy time and that he had recorded some journal entries. She was relieved that there were only a few of his entries, and even more relieved that he had included rather lengthy explanations. The entries Joe made were:

(1)
Work in Process Inventory		25,000
Cash				25,000
(This is for materials put into process. I don’t find the record that we paid for these, so I’m crediting Cash because I know we’ll have to pay for them sooner or later.)

(2)
Manufacturing Overhead		12,000
Cash				12,000
(This is for bonuses paid to salespeople. I know they’re part of overhead, and I can’t find an account called “Non-Factory Overhead” or “Other Overhead” so I’m putting it in Manufacturing Overhead. I have the check stubs, so I know we paid these.)

(3)
Wages Expense		120,000
Cash				120,000
(This is for the factory workers’ wages. I have a note that employer payroll taxes are $18,000. I still think that’s part of wages expense and that we’ll have to pay it all in cash sooner or later, so I credited Cash for the wages and the taxes.)

(4)
Work in Process Inventory		3,000
Raw Materials Inventory				3,000
(This is for the glue used in the factory. I know we used this to make the products, even though we didn’t use very much on any one of the products. I got it out of inventory, so I credited an inventory account.)

If the entry (1) was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated?

If the entry (2) was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated?
If the entry (3) was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated?
If the entry (4) was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated?

For Entry 2., 3., & 4. Both the income statement and balance sheet are affected in this situation. Tell me exactly how and state which accounts are affected and which financial statement they are reported on. For example: "On the balance sheet, account XYZ is understated".

Answer 1

Journal Entries:
Date/Event	Accounts Title	Debit $	Credit $
1	Work in Process Inventory	25000
	Raw Material Inventory		25000
	(being Raw material put into process)
2	Selling expenses-Bonuses	12000
	Cash		12000
	(being bonus selling expenses paid to salespeople)
3	Factory wages	102000
	Employer wages expenses	18000
	Factory wages payable		120000
	(being factory labor wages and taxes made payable)
4	Manufacturing Overhead	3000
	Raw Materials Inventory		3000
	(being glue used for the factory purpose)

1) in the first situation only materials put into process. and payment not done yet , but in the entry cash have credited these effect cash decreses (understated) , which is wrong , this effected the balance sheet cash side effected ,

actual situation is that only material move means materials put into process hence raw material inventory is credited and wip process is debited , this effect only balance sheet inventory.

2) all the factory expenses will debited in manufacturing overhead but in the second situtation bonuses paid to salespeople this is not a factory expenses , this expenses related to product selling /administration expenses ,

in the wrong entry Manufacturing Overhead debited this effect factory cost of the product is overstated . but the right effect in income statement that this is a selling expenses and effected only income staement .

3) in the thired situtation employer payroll taxes is not a part of factory cost , this effect factory cost of product is overstated by 18000 which is wrong , payroll taxes is a part of short term liability . cash account also effected in balance sheet because of  wrong entry( cash balance understated) because this expenses is not paid yet .

4) glue used in the factory so this is a factory expenses but in the wrong entry wip inventry is debited this effcet wip inventory in balance sheet will overstaed by 3000 ,