Effect of errors on financial statements Consider the following hypothetical information pertaining to Embotelladora Andina S.A. (Embotelladora), the producer and distributor of Coca-Cola products in Chile. Embotelladora applies Chilean accounting standards, and reports its results in thousands of Chilean pesos ($) Using the notations O/S (overstated), U/S (understated), and NO (no effect), indicate the effects (direction and amount) on assets, liabilities, and shareholders’ equity as of December 31, 2008, of the following independent errors or omissions. Ignore income tax implications.
a. On December 1, 2008, Embotelladora paid $120,000 for rental of a building for December 2008 and January 2009. The firm debited Rent Expense and credited Cash for $120,000 on December 1, and made no further entries with respect to this rental during December or January.
b. On December 15, 2008, Embotelladora received $82,000 from a customer as a deposit on merchandise that Embotelladora expects to deliver to the customer in January 2009. The firm debited Cash and credited Sales Revenue on December 15, and made no further entries with respect to this deposit during December or January.
c. On December 1, 2008, Embotelladora acquired a truck to be used to transport beverages from the central warehouse to retailers. The truck cost $98,000, has zero salvage value, and is expected to last four years. The firm recorded the transaction by debiting Truck Expense and crediting Cash for $98,000 and made no further entries during December with respect to the acquisition.
d. On December 15, 2008. Embotelladora purchased office supplies costing $86,800. It recorded the purchase by debiting Office Supplies Expense and crediting Cash. The Office Supplies Inventor account on December 1 had a balance of $27,700. Based on a physical inventory on December 31, office supplies costing $24,600 were on hand. The firm made no entries in its accounts with respect to office supplies on December 31, 2008.
e. Embotelladora incurred interest expense of $34,500 for the month of December on a 60-day loan obtained on December 1, 2008. The firm properly recorded the loan on its books on December I, but made no entry to record interest on December 31, 2008. The loan is payable with interest on January 31, 2099.
f. Embotelladora purchased merchandise on account costing $17,900 on December 23, 2008, debiting Merchandise Inventory and crediting Accounts Payable. The firm paid for this purchase on December 28, 2008, debiting Cost of Goods Sold and crediting Cash, but had not sold the merchandise by December 31, 2008.