You are reviewing the financial statements of Highview Corp. forthe year ended December 31, 2015 and notice a number of errorswhich are noted below. For each one, you are required to determinewhat effect, if any, these items would have on the statedcomponents of Highview’s 2015 Income Statement and 12/31/2015Balance Sheet if they are NOT corrected or updated. Assume noincome taxes.
Use the following codes for your answers. No dollar amountcalculations are necessary for your answers.
U = understated
O = overstated
N = no effect
Some examples:
– If you state that Liabilities are Understated, it means thatyou believe that the error in capturing the transaction hasresulted in total liabilities having a wrong balance that is lowerthan the correct balance had the transaction been correctlyrecorded.
– If you state that Net income is O
– If you state that Assets have No effect, it means that youbelieve that the transaction has no effect on total assets.
Transaction
12/31/15
Assets
12/31/2015
Liabilities
12/31/2015
Owners’ Equity
2015
Net Income
a. Depreciation on equipment for the year 2015 was recorded for$48,000. It should have been $66,000.
b. Cash dividends declared and paid in December 2015 were notrecorded.
c. $10,000 of the rent revenue collected and recorded as earnedthis year pertains to 2016.
d. Interest earned during the year on a note receivable was notyet collected or recorded.
e. Supplies purchased during the year for $1,000 cash wereimmediately recorded as an expense and cash was reduced. However$200 of supplies remain unused at the end of the year but nofurther entries have been made.
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