On April 4, 2018, you were hired by Sink Inc., a closely held company, as a staff member of its newly created internal auditing department. While reviewing the companys records for 2016 and 2017, you discover that no adjustment have yet been made for the following items.

a. Interest income of $14,100 was not accrued at the end of 2016. It was recorded in February 2017

b. A computer costing $4,000 was expensed when purchases on July 1, 2016. It is expected to have a 4-year life with no salvage value. The company typically uses straight-line depreciation for all fixed assets.

c. Research and development costs of $33,000 were incurred early in 2016. They were capitalized and were to be amortized over a 3-year period. Amortization of $11,000 was recorded for 2016 and $11,000 for 2017.

d. On January 3, 2016, Gymsenville leased a building for 5 years at a monthly rental of $8,000. On that date, the company paid the following amounts, which were expense when paid.

Security deposit	$20,000
First months rent	8,000
Final months rent	8,000
Total	$36,000

The company received $36,000 from a customer at the beginning of 2016 for services that it is to perform evenly over a 3-year period beginning in 2016. None of the amount received was reported as unearned revenue at the end of 2016.

Merchandise inventory costing $18,200 was in the warehouse at December 21, 2016, but was incorrectly omitted from the physical count at that date. The company uses periodic inventory method.

Instructions: Indicate the effect of any errors on the net income figure on the income statement for year ending December 2016 and the retained earnings reported on the December 31, 2017. Assume all amounts are material and ignore income tax effects. Using the following format, enter the appropriate dollar amounts in the appropriate columns. Consider each item independent of the other items. It is not necessary to total the columns on the grid. Finally provide an adjusting entry to correct each error which would be entered on April 15, 2018 as you conclude your analysis.

	Net income 2016		Retained earnings 12/31/2017
Item	Understated	Overstated	Understated	Overstated
a
b
c
d
e
f

Entries (add rows as needed):

Item	Account	Debit	Credit