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Question

You are reviewing the financial statements of Highview Corp. for the year ended December 31, 2015 and notice a number of errors which are noted below. For each one, you are required to determine what effect, if any, these items would have on the stated components of Highview's 2015 Income Statement and 12/31/2015 Balance Sheet if they are NOT corrected or updated. Assume no income taxes.

Use the following codes for your answers. No dollar amount calculations are necessary for your answers.

U = understated

O = overstated

N = no effect

Some examples:

- If you state that Liabilities are Understated, it means that you believe that the error in capturing the transaction has resulted in total liabilities having a wrong balance that is lower than the correct balance had the transaction been correctly recorded.

- If you state that Net income is O

- If you state that Assets have No effect, it means that you believe 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 not recorded.

c. $10,000 of the rent revenue collected and recorded as earned this year pertains to 2016.

d. Interest earned during the year on a note receivable was not yet collected or recorded.

e. Supplies purchased during the year for $1,000 cash were immediately recorded as an expense and cash was reduced. However $200 of supplies remain unused at the end of the year but no further entries have been made.

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 not recorded.

 

 

 

 

c. $10,000 of the rent revenue collected and recorded as earned this year pertains to 2016.

 

 

 

 

d. Interest earned during the year on a note receivable was not yet collected or recorded.

 

 

 

 

e. Supplies purchased during the year for $1,000 cash were immediately recorded as an expense and cash was reduced. However $200 of supplies remain unused at the end of the year but no further entries have been made.

 

 

 

 

 

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