Impact of Errors on Income Statement

Trinity Company discovered the following errors in Year 2.

Required

a. Indicate how each item would impact net income in Year 1 (overstatement, understatement, or no effect).

b. Indicate how each item would impact net income in Year 2 (overstatement, understatement, or no effect)

1. Interest expense of $3,000 was not accrued at the end of Year 1. Amount was paid and expensed in Year 2 instead. 2. Supplies account at the end of Year 1 was not adjusted for supplies used. The supplies account was reduced in Year 2. 4. A $5,000 accrual for vacation earned in Year 1 (but taken in Year 2) was not included in the financial statements in Year 1. 5. The insurance premium of $800 covering Year 2, and paid in December of Year 1 was expensed in Year 1