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 presidents 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:

How I answered:

Professor feedback: PLEASE HELP FIX

(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.) 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? BIUTTI | E| | If not corrected both Financial statements would be affected (income statement and balance sheets. The balances found in Income statement that would be understated is Sales bonus expense and both income tax expense and net income would be over stated. This error would create quite the dilemma In that the consequences would result in the underapplied overhead to be overstated or the overapplied overhead to be understated. The error found in cost of goods sold has an impact on retained earnings, which would result in retained earnings overstated because net Income and income tax payable is also overstated from the error. 101 Words) 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 1/S to the B/S)? I specifically discuss this in the recorded video lecture posted in the course announcements and covered in Chapter 4 of the text in GB518. 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