Follow this format!!!

Balance Sheet

Cash = Overstated

Retained Earnings = Overstated

Income Statement

Cost of Goods Sold = Understated

Product costs (materials, labor, overhead) are not separately reported on the financial statements. Product costs (materials, labor, overhead) are accumulated and reported in the Inventory account on the Balance Sheet until sold. Once sold, those costs are moved to Cost of Goods Sold expense on the Income Statement. During the period end closing process, all Income Statement accounts are zeroed out to Retained Earnings on the Balance Sheet. You need to tell me what accounts reported on the financial statements that are impacted when these product costs are incorrect.

For example, say a product cost the company $8 in total to make. That $8 is sitting in the Inventory account reported on the B/S until sold. When sold for $12, for example, then that $8 is removed from Inventory and expensed on the I/S to COGS with the following two journal entries to record the sale and related COGS expense:

Dr. Cash $12

Cr. Sales Revenue $12

Dr. Cost of Goods Sold $8

Cr. Inventory $8

Thus, if manufacturing OH was reported incorrect in the journal entry from situation #2, then Inventory on the B/S is incorrect and COGS on the I/S is incorrect. If COGS on the I/S is incorrect, then Retained Earnings on the B/S is incorrect after all the I/S accounts have been zeroed out to R/E during the period-end closing process.

1. Both accounts are supposed to be asset accounts. One is debited (increased) and one is credited (decreased). They both cannot be understated.

2., 3., & 4. Both the income statement and balance sheet are affected in this situation. Tell me exactly how and state which accounts are affected and which financial statement they are reported on. For example: "On the balance sheet, account XYZ is understated".

2. OH is a product cost and is not separately reported on the financial statements. What accounts are impacted on the financial statements when product costs are recorded incorrectly (hint: COGS and closing process of temporary accounts on the I/S to the B/S)? Note: The original intent of the entry is to record Sales Bonus but the Sales Bonus Expense account was not used. Note: Inventory is not impacted in this entry because the over/under-applied manufacturing OH is closed out to COGS directly then COGS is closed out to Retained Earnings.

3. Factory wages are OH (i.e. a product cost) and is not separately reported on the financial statements. What accounts are impacted on the financial statements when product costs are recorded incorrectly (hint: COGS and closing process of temporary accounts on the I/S to the B/S)? When payroll is processed there are 4 accounts used. For factory wages, they are: Wages Expense, Factory Wages Payable, Employer Tax Expense, and Employer Taxes Payable. Dont forget to discuss the fact that the original entry incorrectly stated that Cash had not been paid yet but the original entry credited Cash anyway. Note: Inventory is not impacted in this entry because the over/under-applied manufacturing OH is closed out to COGS directly then COGS is closed out to Retained Earnings.

4. OH is a product cost and is not separately reported on the financial statements. What accounts are impacted on the financial statements when product costs are recorded incorrectly (hint: COGS and closing process of temporary accounts on the I/S to the B/S)? Note: Inventory is reported at the aggregate amount of RM, WIP, FG. The errors offset in this entry and do not affect Inventory on the B/S. Assume the units in WIP were sold (i.e. impacting COGS). Also, Inventory is not impacted in this entry because the over/under-applied manufacturing OH is closed out to COGS directly then COGS is closed out to Retained Earnings.

Question 2 of 2 0/5 = View Policies Show Attempt History Current Attempt in Progress Your answer is incorrect. In the course of routine checking of all journal entries prior to preparing year-end reports, Betty Eller discovered several strange entries. She recalled that the president's son Joe 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 Joe made were: (1) Work in Process Inventory 25,000 Cash 25,000 (This is for materials put into process. I don't find the record that we paid for these, so I'm crediting Cash because I know we'll have to pay for them sooner or later.) (2) Manufacturing Overhead 12.000 Cash 12,000 (This is for bonuses paid to salespeople. I know they're part of overhead, and I can't find an account called "Non-Factory Overhead" or "OtherOverhead" so I'm putting it in Manufacturing Overhead. I have the check stubs, so I know we paid these.) (3) Wages Expense 120,000 Cash 120,000 (This is for the factory workers' wages. I have a note that employer payroll taxes are $18.000. I still think that's part of wages expense and that we'll have to pay it all in cash sooner or later, so I credited Cash for the wages and the taxes.) (4) Work in Process Inventory 3,000 Raw Materials Inventory 3,000 (This is for the glue used in the factory. I know we used this to make the products, even though we didn't use very much on any one of the products. I got it out of inventory, so I credited an inventory account.) If the entry (1) was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated? BI VTT I = 11 IM = Balance Sheet Cash = Understated work in process inventory = Overstated If the entry (2) was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated? I ili III = On the income statement, the cost of goods sold is overstated and the 13 Word(s) e Textbook and Media If the entry (3) was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated? . ' !!! III 1 E 99 = T On the income statement, Cost of Goods Sold is understated and Wages Expense is overstated. On the balance sheet, Cash, Factory Wages Payable, and Employer Payroll Taxes Payable are understated. 30 Word(s) If the entry (3) was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated? BI T T I = 9 = On the income statement, Cost of Goods Sold is understated and Wages Expense is overstated. On the balance sheet, Cash, Factory Wages Payable, and Employer Payroll Taxes Payable are understated. 30 Word(s) e Textbook and Media If the entry (4) was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated? BI V T T'I ili 111 a 1 1 Bill 99 = On the income statement Cost of Goods Sold is overstated, Income Tax Expense is understated, and the net income is understated. 21 Word(s)