omitted adjusting entries for (a) unearned revenue earned during the year ($18,000) and
(b) accrued wages ($3,000). Indicate the effect of each error, considered individually, on
the income statement for the current year ended May 31. Also indicate the effect of each
error on the May 31 balance sheet. Set up a table similar to the following, and record
your answers by inserting the dollar amount in the appropriate spaces. Insert a zero if
the error does not affect the item.
Error (a) Error (b)
Overstated Understated Over Under
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 May 31 would be $ ____ $ ____ $ ____ $ ____
5. Liabilities at May 31 would be $ ____ $ ____ $ ____ $ ____
6. Owner’s equity at May 31 would be $ ____ $ ____ $ ____ $ ____
Answer:
Error (a) Error (b)
Over- Under- Over- Under-
1. Revenue for the year would be.............. $ 0 $18,000 $ 0 $ 0
2. Expenses for the year would be ............ 0 0 0 3,000
3. Net income for the year would be.......... 0 18,000 3,000 0
4. Assets at May 31 would be .................... 0 0 0 0
5. Liabilities at May 31 would be................ 18,000 0 0 3,000
6. Owner’s equity at May 31 would be....... 0 18,000 3,000 0
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