BYP2-2 In the course of routine checking of all journal entries prior to preparing year-end reports, Diane Riser discovered several strange entries. She
recalled that the president's son Ron had come in tohelp 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 Ron 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 payroll taxes are $15,000. 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 aninventory account.
Instructions (a) How should Ron have recorded each of the four events? (b) If the entry was not corrected, which financial statements (income
statement or balance sheet) would be affected? (C) What balances would be overstated or understated?
BYP2-2 In the course of routine checking of all journal entries prior to preparing year-end reports, Diane Riser discovered several strange entries. She
recalled that the president's son Ron had come in tohelp 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 Ron 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 payroll taxes are $15,000. 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 aninventory account.
Instructions (a) How should Ron have recorded each of the four events? (b) If the entry was not corrected, which financial statements (income
statement or balance sheet) would be affected? (C) What balances would be overstated or understated?
(a) How should Ron have recorded each of the four events?
Date
Particular
Debit
Credit
1
Work in Process Inventory
$25,000
If not corrected the balancesheet would be affected.
Raw material Inventory
$25,000
2
Sales Bonus Expense
$12,000
Cash
$12,000
3
Factory Labor
$120,000
Factory Wages Payable
$105,000
Employer Payroll Taxes Payable
$15,000
4
Facrory Overhead
$3,000
Raw material Inventory
$3,000
B) If the entry was not corrected, which financial statements
(income statement or balance sheet) would be affected
If not corrected, both income statement and balance sheet are
If not corrected, both income statement and balance sheet are
If not corrected, both income statement and balance sheet are
(C) What balances would be overstated or understated?
If not corrected the balancesheet would be affected.
Cash balance will be understated and Raw Materials Inventory will be overstated
B) If the entry was not corrected, which financial statements
(income statement or balance sheet) would be affected
Sales Bonus expense will be understated, Income Tax is Income Tax Payable is
overstated and Net Income is overstated. Resultantly Retained Earnings is also
overstated because of net income overstated
Cost of goods sold, factory wages payable, employer payroll taxes payable and cash will
be understated. Wages expense will be overstated.
Income Tax Expense, Income Tax Payable and net Income will be understated. Because
Net Income is understated so the Reatined Earnings is also understated. Where as Cost
of good sold will be overstated
If not corrected, both income statement and balance sheet are
affected.
If not corrected, both income statement and balance sheet are
affected.
If not corrected, both income statement and balance sheet are
affected.
(C) What balances would be overstated or understated?
Cash balance will be understated and Raw Materials Inventory will be overstated
Sales Bonus expense will be understated, Income Tax is Income Tax Payable is
overstated and Net Income is overstated. Resultantly Retained Earnings is also
overstated because of net income overstated
Cost of goods sold, factory wages payable, employer payroll taxes payable and cash will
be understated. Wages expense will be overstated.
Income Tax Expense, Income Tax Payable and net Income will be understated. Because
Net Income is understated so the Reatined Earnings is also understated. Where as Cost
of good sold will be overstated
