Hello,

I am struggling with the problem below. I need to explain for each incorrect journal entry what would have been overstated or understated due to the errors, as well as which statement it would have impacted (balance sheet, income statement, or both). I have included the instructor feedback below as well as my original answers in bold after each entry. Thank you:

Instructor Feedback:

2. Manufacturing overhead is not separately reported on the financial statements. What accounts reported on the financial statements are impacted when manufacturing overhead is incorrect? Both the income statement and balance sheet are affected in this situation. Tell me how and state which accounts are affected and which financial statement they are reported on.

4. You stated that the income statement is affected. That is correct but you did not specify an account presented on the income statement.

Expand Your Critical Thinking 15-02 b1-b4 (Essay)

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.)

This entry would affect the balance sheet.It would understate work in process inventory and overstate cash.

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 "Other Overhead" so I'm putting it in

Manufacturing Overhead. I have the check stubs, so I know we paid these.)

This entry would affect both the balance sheet and the income statement.It would understate cost of goods sold on the income statement, work in process inventory on the balance sheet, and overstate cash.

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.)

This entry would affect both the balance sheet and the income statement.It would understate wages expense and overstate cash.

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.)

This entry would affect both the balance sheet and the income statement.It would overstate work in process inventory and cost of goods sold and overstate raw materials inventory.