Income Statement The accountant for Dolfin Company prepared the following income statement. The auditor has asked you to use this statement to provide additional information to Dolfin Company on the Final Questions panel. Dolfin Company Income Statement For the Year Ended December 31, 2020 1 Sales $320,840.00 2 Expenses: 3 Cost of merchandise sold $218,171.20 4. Selling expenses 41,709.20 5 Administrative expenses 35,292.40 6 Interest expense 275.00 7 Total expenses 295,447.80 8 Net income $25,392.20 Merchandising Transactions Shaded cells have feedback. X You are working as a summer intern for AAA Auditing. You have been asked to help resolve discrepancies noted in the audit for Dolfin Company, a retailer of specialty aquarium supplies. As a merchandising company, Dolfin Company uses the perpetual inventory system. To prepare for this assignment, you have been asked to review your knowledge of sales and purchase transactions by completing the following table. Consider the effect of each transaction on the three accounts listed, then use checkmarks to identify which accounts are debited or credited. If none of these accounts is affected by the transaction, check the "No Effect" box. " Merchandise Inventory Debit Credit Estimated Returns Inventory Cost of Merchandise Sold Debit Credit Debit Credit No Effect Customer returns O a Payment of service fee for processing credit card sales Customer payment on account O Yearly estimate for customer returns Purchase of merchandise for resale C 0 OOOOOOOO Sale on account C 0 O 0 O O O O O O O Freight paid for merchandise purchased FOB shipping point Freight paid for sales with FOB destination C OOOO Cash sale of merchandise O Return of merchandise purchased for resale Points: 9.71 / 10 Feedback Auditing Observations Shaded cells have feedback After going through the accounting records of Dolfin Company in detail, the auditor made a list of observations. You have been asked to review the effect of these observations For each observation, use checkmarks to identify which items on the income statement are overstated or understated. If none of these ilems is affected by the observation, check the "No Elect" box. Sales Overstated Understated Cost of Merchandise Sold Overstated Understated No Gross Profit Overstated Understated Operating Expenses Overstated Understated Income from Operations Overstated Understated Observations Effect Customer returns and allowances were sometimes debited to Estimated Returns Inventory and credited to O 0 Sales. Sales tax collected on each sale was credited to Cost of Merchandise Sold Office supplies expense was included in 0 | | O O O administrative expenses. Inventory shrinkage was credited to Miscellaneous Selling Expense. 0 - All freight costs were charged to Delivery Expense regardless of the terms of sale. 0 O | Credit card processing fees were debited to Cost of Merchandise Sold. O While the company accountant was on vacation, the cost o O O of each sale was not recorded for sales transactions. Points: 6.36/7 Feedback