BYP2-2

In the course of routine checking of all journal entries prior to preparing year-end reports, Diane Riser discovered several strange entries. She recalled that the president's son Ron had come in to help out during an especially busy time and that he had recorded some journal entries. She was relieved that there were only a few of his entries, and even more relieved that he had included rather lengthy explanations. The entries Ron made were:

Wages Expense	120,000
Income Tax Payable / s/b Employer Payroll Taxes Payable Cash / s/b Factory Wages Payable		15,000 105,000
o Ron should have debited the Salary Expense Account with $120,000. He should have then credited the Income Tax Payable Account and Cash Account with $15,000 and $105,000 respectively. His entry affects the Income Statement whereby the Salary Expenses will be overstated by $15,000 and Tax Expense Payable will be understated by the same amount. The Balance Sheet will also be affected. The Accrued Income tax will be understated by $15,000. This in turn will understate the current liabilities by the same amount. Cash will also be understated by $15,000 resulting in the total current assets be understated by the same amount. SEE THE END OF THE CASE STUDY FOR COMMENTS.

3. (b) If not corrected, both the income statement and the balance sheet are affected. On the income statement: Cost of Goods Sold is understated Wages Expense is overstated. On the balance sheet: Cash, Factory Wages Payable, and Employer Payroll Taxes Payable are understated.

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BYP2-2 TEAM B LEARNING TEAM MANAGERIAL ANALYSIS THE PROBLEM IN THE COURSE OF ROUTINE CHECKING OF ALL JOURNAL ENTRIES PRIOR TO PREPARING YEAR-END REPORTS, DIANE RISER DISCOVERED SEVERAL STRANGE ENTRIES. SHE RECALLED THAT THE PRESIDENT'S SON RON HAD COME IN TO HELP OUT DURING AN ESPECIALLY BUSY TIME AND THAT HE HAD RECORDED SOME JOURNAL ENTRIES. SHE WAS RELIEVED THAT THERE WERE ONLY A FEW OF HIS ENTRIES, AND EVEN MORE RELIEVED THAT HE HAD INCLUDED RATHER LENGTHY EXPLANATIONS. (NEED TO CHANGE TO BULLET POINTS) JOURNAL ENTRY #1 ORIGINAL ENTRY: ACCOUNT NAME 25,000 ACCOUNT NAME 25,000 SHOULD HAVE BEEN POSTED: WORK IN PROCESS INVENTORY 25,000 25,000 RAW MATERIALS INVENTORY JOURNAL ENTRY #1 WHERE WOULD WE SEE AN ERROR? FINANCIAL STATEMENTS IMPACTED WHAT IS WRONG? WHICH ACCOUNTS ARE UNDERSTATED WHICH ACCOUNTS ARE OVERSTATED JOURNAL ENTRY #2 ORIGINAL ENTRY: ACCOUNT NAME XXX ACCOUNT NAME XXX SHOULD HAVE BEEN POSTED: ACCOUNT NAME ACCOUNT NAME XXX XXX JOURNAL ENTRY #2 WHERE WOULD WE SEE AN ERROR? FINANCIAL STATEMENTS IMPACTED WHAT IS WRONG? WHICH ACCOUNTS ARE UNDERSTATED WHICH ACCOUNTS ARE OVERSTATED JOURNAL ENTRY #3 ORIGINAL ENTRY: ACCOUNT NAME XXX ACCOUNT NAME XXX SHOULD HAVE BEEN POSTED: ACCOUNT NAME ACCOUNT NAME XXX XXX JOURNAL ENTRY #3 WHERE WOULD WE SEE AN ERROR? FINANCIAL STATEMENTS IMPACTED WHAT IS WRONG? WHICH ACCOUNTS ARE UNDERSTATED WHICH ACCOUNTS ARE OVERSTATED JOURNAL ENTRY #4 ORIGINAL ENTRY: ACCOUNT NAME XXX ACCOUNT NAME XXX SHOULD HAVE BEEN POSTED: ACCOUNT NAME ACCOUNT NAME XXX XXX JOURNAL ENTRY #4 WHERE WOULD WE SEE AN ERROR? FINANCIAL STATEMENTS IMPACTED WHAT IS WRONG? WHICH ACCOUNTS ARE UNDERSTATED WHICH ACCOUNTS ARE OVERSTATED REFERENCES ONLY NEEDED IF YOU HAVE SOURCES TO CITE