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CASE 2 Case 4-2 Save-Mart* Save-Mart was a retail store. Its account balances on February 28 (the end of its fiscal year), before adjust- ments,
CASE 2 Case 4-2 Save-Mart* Save-Mart was a retail store. Its account balances on February 28 (the end of its fiscal year), before adjust- ments, were as shown below. Debit Balances Credit Balances Accumulated depreciation on store equipment $ 11,420 Cash Accounts receivable Merchandise inventory Store equipment Supplies inventory Prepaid insurance Selling expense Sales salaries Miscellaneous general expense Sales discounts Interest expense Social Security tax expense Total $ 88,860 ---1-27,430 903, 130 70,970 17,480 12,430 10,880 47,140 18,930 3,340 7,100 3,400 $1,311,090 Notes payable Accounts payable Common stock Retained earnings Sales 88,500 88,970 100,000 33,500 988,700 Total $1,311,090 7. The statement sent by the bank, adjusted for checks outstanding, showed a balance of $88,110. The dif- ference represented bank service charges. The data for the adjustments are 1. Cost of merchandise sold, $604,783. 2. Store equipment had a useful life of seven years. (All equipment was less than seven years old.) 3. Supplies inventory, February 28, $3,877. (Pur- chases of supplies during the year were debited to the Supplies Inventory account.) 4. Expired insurance, $7,125. 5. The note payable was at an interest rate of 9 per- cent, payable monthly. It had been outstanding throughout the year. 6. Sales salaries earned but not paid to employees, $2,340. Question : Explain the effects on balance sheet and income statement accounts if adjusting entries were not prepared by Save-Mart. Identify the amount of understatement or overstatement in EACH accounts
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