The following income statement was prepared for Frame Supplies for the year 2016:

 

During the year-end audit, the following errors were discovered:

1. A $2,500 payment for repairs was erroneously charged to the Cost of Goods Sold account. (Assume that the perpetual inventory system is used.)

2. Sales to customers for $1,800 at December 31, 2016, were not recorded in the books for 2016. Also, the $980 cost of goods sold was not recorded.

3. A mathematical error was made in determining ending inventory. Ending inventory was understated by $2,150. (The Inventory account was mistakenly written down to the Cost of Goods Sold account.)

Required:

Determine the effect, if any, of each of the errors on the following items. Give the dollar amount of the effect and whether it would overstate (O), understate (U), or not affect (NA) the account. The first item for each error is recorded as an example.

FRAME SUPPLIES Income Statement For the Year Ended December 31, 2016 $ 250,000 (140,000) Sales Cost of goods sold Gross margin Operating expenses 110,000 (69,500) $ 40,500 Net income