After going through the accounting records of Dolfin Company in detail, the auditor made a list of observations. You have been asked to review the effect of these observations.

For each observation, use checkmarks to identify which items on the income statement are overstated or understated. If none of these items is affected by the observation, check the No Effect box.

(The Boxes in Red indicate that answer is incorrect and there are incorrect answers in the last two rows, please adjust and give correct answers for all boxes)

Sales Cost of Merchandise Sold Gross Profit Overstated Understated Overstated Understated Overstated Understated Operating Expenses Income from Operations Overstated Understated Overstated Understated No Effect Observations Office supplies expense was included in administrative expenses. All freight costs were charged to Delivery Expense regardless of the terms of sale. Credit card processing fees were debited to Cost of Merchandise Sold. Customer returns and allowances were sometimes debited to Estimated Returns Inventory and credited to Sales. While the company accountant was on vacation, the cost of each sale was not recorded for sales transactions. Sales tax collected on each sale was credited to Cost of Merchandise Sold. Inventory shrinkage was credited to Miscellaneous Selling Expense