Effect of recording errors on the balance sheet equation. Using the notation \(\mathrm{O} / \mathrm{S}\) (overstated), U/S (understated), or No (no effect), indicate the effects on assets, liabilities, and shareholders' equity of failing to record or recording incorrectly each of the following transactions or events. For example, a failure to record the issuance of common stock for \(\$ 10,000\) cash would be shown as follows:

- Assets-U/S \(\$ 10,000\)

- Liabilities-No

■ Shareholders' equity-U/S \(\$ 10,000\)

(1) A firm ordered \(\$ 23,000\) of merchandise from a supplier but did not record anything in its accounts.

(2) The firm received the merchandise in transaction (1) and recorded it by debiting Merchandise Inventory and crediting Accounts Payable for \(\$ 32,000\).

(3) The firm acquired an automobile costing \(\$ 20,000\) by paying \(\$ 2,000\) in cash and signing a note payable for the remainder of the purchase price. It recorded the acquisition by debiting Automobile for \(\$ 20,000\), crediting Cash for \(\$ 18,000\), and crediting Note Payable for \(\$ 2,000\).
(4) The firm paid the \(\$ 1,800\) annual insurance premium on the automobile in transaction (3) by debiting Automobile and crediting Cash for \(\$ 1,800\). The insurance period begins next month.
(5) The firm received an order from a customer for \(\$ 5,500\) of merchandise that the firm will deliver next month. The customer included a check for \(\$ 1,500\). The firm made no entry for this transaction.
(6) The firm issued 2,000 shares of its \(\$ 10\)-par value common stock having a market value of \(\$ 32,000\) in exchange for land. It recorded the transaction by debiting Land and crediting Common Stock for \(\$ 20,000\).
(7) The firm signed a three-year employment agreement with its chief executive officer at an annual salary of \(\$ 275,000\). The employment period begins next month. The firm did not record anything in its accounts related to this agreement.