Effect of recording errors on the balance sheet equation. A firm recorded various transactions with the journal entries shown below. Using the notation O/S (overstated), U/S (understated), or No (no effect), indicate the effects on assets, liabilities, and shareholders' equity of any errors in recording each of these transactions. For example, if a firm recorded the issue of \(\$ 10,000\) of common stock by debiting Cash and crediting Bonds Payable, the effects of the error are shown as follows:

Assets-No - Liabilities-O/S \(\$ 10,000\)
- Shareholders' equity-U/S \(\$ 10,000\)

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(1) Equipment Cash Note Receivable To record acquisition of equipment for $2,000 cash and signing of an $8,000 promissory note for the balance. (2) Equipment Cash Note Payable To record the placing of an order for equipment to be delivered next month. The firm made a $1,000 deposit with the order. 10,000 2,000 8,000 4,000 1,000 3,000 (3) Cash Accounts Receivable 800 800 To record an advance from a customer on merchandise to be shipped next month. The customer did not owe the firm any amounts at the time of this transaction. (4) Prepaid Rent 1,000 Rent Payable 1,000 To record the signing of a rental agreement for warehouse space for a one-year period beginning next month. The monthly rental fee of $1,000 is due on the first day of each month. (5) Patent 2,500 Cash 2,500 To record the issuance of common stock in the acquisition of a patent. (6) Merchandise Inventories 4,900 Cash. 4,900 To record the acquisition of office equipment for cash.