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:

(1)

Work in Process Inventory 25,000

Cash 25,000

(This is for direct materials put into process. I dont find the record that we paid for these, so Im crediting Cash because I know well 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 theyre part of overhead, and I cant find an account called Non-Factory Overhead or Other Overhead so Im putting it in Manufacturing Overhead. I have the check stubs, so I know we paid these.)

(3)

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 didnt use very much on any one of the products. I got it out of inventory, so I credited an inventory account.)

Questions:

How should Joe have recorded each of the three events?

If the entry was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated? (For events (2) and (3), assume the affected units were completed and sold.